Late payment charges

What are the statutory late payment charges in the UK?

In accordance with the Late Payment of Commercial Debts (Interest) Act 1998, where contract terms are silent or no terms have been agreed as to late payment, statutory late payment charges can be implied into payment terms. Such charges can be interest on late payments, compensation on overdue invoices as well as reasonable legal fees.

Can businesses claim interest on late payments?

Yes, the Late Payment of Commercial Debts (Interest) Act 1998 applies to business-to-business contracts. Statutory interest is calculated at 8% plus the Bank of England base rate, accruing daily from the date the invoice payment was due until the date the payment is made.

When does the late payment interest period start?

The interest period for late payments in the UK begins the day after the agreed payment date detailed on the invoice or, if no payment terms were agreed, after the standard payment period set by law has elapsed—usually 30 days from the supply of goods or services or receipt of invoice.

What legal steps can businesses take to recover late payment charges?

If a customer refuses or fails to pay statutory late payment charges and interest, businesses may legally pursue payment through formal debt recovery processes. Typically, this involves issuing a Letter Before Action (LBA), followed by court proceedings if payment is still not made. Prompt legal action can increase the chances of successfully recovering outstanding debts.

Must statutory late payment charges be stated on the invoice?

No, statutory late payment charges do not need to be explicitly mentioned on the original invoice for businesses to legally claim them later. However, clearly stating the payment terms and the potential consequences of late payment on invoices, reminders, and contracts can help reduce disputes and encourage timely compliance from debtors.

How long does a business have to claim late payment interest and charges?

In England and Wales, businesses typically have up to six years from the date a payment became overdue to pursue and claim statutory late payment interest and related charges. After this period, claims may become legally unenforceable under the Limitation Act 1980.