Knowledge Hub
for Growth

Claiming interest on late payments: what you need to know

If you are a business owner, it’s highly likely that at some stage, you have encountered a scenario where you were not paid in a timely manner for your product or services. This guide will cover the basics of what you need to know about your right to claim interest on late payments, and how to go about doing so to help you avoid a business dispute escalating.

Are you entitled to claim interest on late payments?

Firstly, it’s important to be aware that all businesses have a statutory right in law to claim interest on late payments. Because late payments can have a detrimental knock-on effect on both your company’s finances and on the relationship, you have with a late paying client, you should give careful consideration to making your stance on this clear right at the outset of this relationship with the other business.

Also, you should be aware that this legal right does not apply to sales to consumers – only to other businesses and to clients from the public sector.

Incorporating the right to claim interest into your contracts

It’s advisable to set out clearly what happens in the event a client is late in paying you within the terms of your contracts, and seek the other company’s agreement before proceeding to work together. However, you are not permitted to impose any unfair terms and if the contract relates to business-to-business transactions, agreement for payment should be within 60 days of the transaction being made. It’s open to you and the other company to agree to longer than this – but it must be fair to both businesses.

If you are dealing with a client from the public sector, the above timeframe is typically reduced to within 30 days for payment.

If you decide not to agree payment terms, the statutory right will apply in any event.

When is a payment classed as late?

This will of course largely depend on the specific set of circumstances at hand. If you have not agreed between yourselves a date for payment within the confines of the timeframes discussed above, then the law states that the payment is late 30 days after either:

  • The client receives your invoice
  • You deliver the goods or provide the service (if this is later)

In the above scenario, you are entitled to charge interest 30 days after you provided the service or delivered the goods, or 30 days after you notified your client of the amount of the debt owing to you (whichever is later). We would encourage you to send a written invoice and keep a copy, as opposed to discussing this via more informal means alone.

To reiterate, it’s best practice to formulate agreements in writing as part of your contracts, with clear parameters as to when payment is due, when it is classed as late and how any interest on late payments is calculated.

What’s the rate of interest that you are entitled to claim?

The interest you’re permitted by law to charge another business if they are late with settling your payment is statutory interest – this is 8% plus the Bank of England base rate. Whilst the rate of interest in your scenario might be different if that’s what you and the other company have agreed, you cannot then claim statutory interest in addition to this.

In relation to public sector contracts, you cannot use a lower interest rate than the statutory rate.

Which base rate should you use?

If you are claiming interest on a debt that has become late between 1 January and 30 June, you should use the base rate as it was on the preceding 31 December. If the time period for the late payment falls between 1 July and 31 December, then you would use the base rate as it was on 30 June.

How do you calculate the interest owed?

Calculation of the interest you are entitled to charge on late payments is not complicated. There is a handy calculator on the Small Business Commissioner website that can be found here.

It’s worth noting that any part payment received from your client will go towards reducing the interest owed first, unless you and they agreed otherwise. Also, you are entitled to charge interest on the total amount of the debt (including any VAT), but you won’t have to pay VAT on this interest.

What’s the process for claiming interest?

As previously mentioned, it’s a good idea to set out your right to claim interest in your blanket terms and conditions, or in the agreements you execute with your clients. This then leaves it open for you to do so if you choose to, and it may act as an incentive for clients to settle their invoices in a timely fashion if they see this in black and white. Your invoices should also clearly state the payment due date and the right to charge interest beyond that date. Additionally, ensure that you make claiming interest on late payments an integral part of your credit control system.

Once a payment due date has passed and interest starts to accumulate, it’s advisable to write to your client with the following details:

  • Confirmation that payment is now overdue and reiteration of when the due date was.
  • How much is due to be paid to you.
  • The original invoice number (enclose a copy of the relevant invoice).
  • The daily rate of interest your client will be charged and how that is calculated.
  • Details of how the sum owed should be paid (for example, details of your business bank account, the transaction ID they should use, etc.)

Once the amount outstanding (including any interest) has been settled up, send a final bill to your customer with details of all interest charged.

What if your client still doesn’t pay?

Unfortunately, the above actions may not always secure payment and you might be left with no alternative but to take matters further. This could take the form of litigation to recover the money you are owed, or passing the case to a debt management company to pursue (if you do this, you must notify your client in writing that the debt has been assigned to a third party). If you have legal expenses insurance, we recommend that you contact your insurers for advice in the event that you encounter a client who is refusing to pay.

A note on debt recovery costs

In addition to claiming interest on late payments, you are entitled in law to claim reasonable debt recovery costs. These are fixed sums, and the one-off amount chargeable depends on the amount of the debt owed:

  Amount of debt  What you can charge
  Up to £999.99  £40
  £1,000 to £9,999.99  £70
  £10,000 or more  £100

If your actual debt recovery costs are higher than this (for example, in cases where you have to instruct a debt collection agency for assistance), you can claim reasonable recovery costs. Evidence of how these figures claimed can be justified should be kept in the event that they are challenged by your client.

Are you obliged to charge interest?

You are not legally obliged to charge your clients interest on late payments. It’s advisable to check what other businesses in the same industry as you do, and make a judgment call based on how you feel it may affect customer relationships as a whole. However, if late payment is a persistent problem that you encounter, then a tightening of your credit control systems ought to be considered in the first instance. If in doubt about whether you should charge interest on late payments, we would recommend that you contact your trade association for some advice.

We know that situations involving client relationships and overdue payments can be stressful. Our specialist solicitors can help with a wide range of matters, from getting the right terms and conditions drafted to suit your company’s needs to assisting with business disputes when things don’t turn out as planned.

What next?

To access legal support from just £125 per hour arrange your free no-obligation initial consultation to discuss your business requirements. Call us on – 0800 689 1700, email us at, or fill out our contact form and we’ll get back to you within 24 hours.

  • This field is for validation purposes and should be left unchanged.

Your data will only be used by Harper James Solicitors. We will never sell your data and promise to keep it secure. You can find further information in our Privacy Policy.

Our offices

A national law firm

A national law firm

Our commercial lawyers are based in or close to major cities across the UK, providing expert legal advice to clients both locally and nationally.

We mainly work remotely, so we can work with you wherever you are. But we can arrange face-to-face meeting at our offices or a location of your choosing.

Floor 5, Cavendish House, 39-41 Waterloo Street, Birmingham, B2 5PP
Stirling House, Cambridge Innovation Park, Denny End Road, Waterbeach, Cambridge, CB25 9QE
13th Floor, Piccadilly Plaza, Manchester, M1 4BT
10 Fitzroy Square, London, W1T 5HP
Harwell Innovation Centre, 173 Curie Avenue, Harwell, Oxfordshire, OX11 0QG
2-5 Velocity Tower, 1 St Mary’s Square, Sheffield, S1 4LP
A national law firm

Like what you’re reading?

Get new articles delivered to your inbox

Join 8,153 entrepreneurs reading our latest news, guides and insights.


To access legal support from just £125 per hour arrange your free no-obligation initial consultation to discuss your business requirements.

Make an enquiry