When a business customer pays late, you are not simply out of pocket for the invoice — you are entitled to be compensated for the delay. Yet many creditors never claim the statutory interest and compensation the law gives them. Here is how to calculate and charge it, and why it matters when you sell a debt.
The legal basis
The Late Payment of Commercial Debts (Interest) Act 1998, as amended, gives businesses an automatic right to charge interest and compensation on overdue commercial debts owed by other businesses or public bodies. These rights apply even if your contract is silent, and clauses that try to remove them are generally void.
Statutory interest: how to calculate it
Statutory interest runs at 8% above the Bank of England base rate. To work out what you are owed:
- Take the base rate in force (rates are fixed for six-month reference periods).
- Add 8% to get the statutory rate.
- Apply it to the outstanding amount for the number of days the invoice is late.
For example, on a £10,000 invoice at a 12% statutory rate, 90 days late, you would be owed roughly £296 in interest.
Fixed compensation per invoice
On top of interest, you can claim a fixed sum for each late invoice:
- £40 for debts up to £999.99.
- £70 for debts of £1,000 to £9,999.99.
- £100 for debts of £10,000 or more.
And if your reasonable costs of recovering the debt exceed the fixed sum, you can claim the difference.
These sums add up. On a ledger of dozens of late invoices, the compensation alone can run into thousands of pounds.
How to charge it in practice
Add the interest and compensation to your statement or demand, showing the calculation clearly. You are not obliged to charge every customer every time, but stating the entitlement often prompts faster payment — it signals you understand your rights.
Why this matters when selling a debt
When you assign a debt, the accrued interest and compensation transfer with it (unless you agree otherwise). A debt that has properly accrued statutory interest is worth more, because the buyer inherits a larger, well-founded claim. Documenting the interest correctly therefore lifts the sale value.
➜ Sell my overdue invoice from £19.90
Watch the limitation clock
The right to claim the debt — and the interest on it — is still subject to the six-year limitation period. Do not let an invoice age to the point where neither the principal nor the accrued interest can be enforced.
Conclusion
Late payment interest and compensation are your legal entitlement, not a favour. Calculate them, add them to your demands, and remember they travel with the debt if you sell it. Charging them properly both encourages payment and increases what your receivable is worth on the market.
