Blog | by Rob Young | October 2026
Late Payment Interest in the UK: How to Claim It and Chase Overdue Invoices
Rob Young
Cashflow rarely collapses because a business is not making money. It collapses because the money it has earned is sitting in someone else's bank account. If another business pays you late, the law gives you the right to charge interest at 8% above the Bank of England base rate, plus a fixed fee for the cost of chasing. With the base rate at 3.75% that works out at 11.75% a year, and the government has also set out plans to tighten the rules further. Here is how it works and how to chase an invoice without wrecking the customer relationship.
Can I charge interest on a late business invoice?
Yes, provided the customer is another business or a public authority rather than a consumer. Unless your contract sets a different arrangement, the late payment legislation allows you to claim statutory interest at 8% plus the Bank of England base rate on the overdue amount. The base rate used is the one in force on 30 June or 31 December immediately before the debt became overdue, not whatever it happens to be on the day you chase. If the contract does contain its own late payment interest rate, that is used instead, provided it is a substantial remedy.
Interest generally starts to run from the day after the agreed payment date, or from 30 days after delivery or invoice where no payment date was agreed. You do not have to claim it,and many businesses choose to use it as a lever with a persistent late payer rather than charging it automatically on every invoice.
How much interest and compensation can I claim?
With the base rate at 3.75% on both of those reference dates this year, the statutory rate for debts falling overdue in 2026 is 11.75%, which works out at roughly 32p a day on a £1,000 invoice or about £3.22 a day on £10,000. It is not a fortune on a single invoice, but the daily figure on a large debt that drags on for months quickly becomes noticeable. It is worth noting that the the Bank of England rate can change every 6 weeks throughout the year so ensure it is the latest interest rate you are using before sending and documents to customers.
On top of interest you can claim a fixed sum towards your recovery costs, which depends on the size of the debt. It is £40 for debts up to £999.99, £70 for debts from £1,000 to £9,999.99 and £100 for debts of £10,000 or more. You can only claim this once for each late payment, though you can also pursue reasonable additional costs each time you try to recover the debt.
What is the best way to chase an overdue invoice?
Start with the basics before reaching for the legislation. Check the invoice was sent to the right person, that it quotes a clear due date and any purchase order number and that nothing is in dispute. A surprising number of late payments turn out to be an invoice stuck in the wrong inbox.
Then escalate in steps: a friendly reminder a few days before the due date, a firmer message on the day after, a phone call to someone in accounts payable and, if needed, a formal letter that states the amount, the interest accruing and the fixed compensation you are entitled to claim. If you add interest or compensation you will need to send a new invoice for it. A Xero aged receivables report is a simple way to see at a glance which customers are slipping and by how many days.
What happens if they still will not pay?
If a customer ignores a formal letter, the next step is usually a letter before action giving a final deadline, followed by a claim through the court system for a debt. The cost of doing so should be weighed against the size of the debt and the customer's ability to pay, so it is worth checking they are still trading before you spend money pursuing them.
For ongoing relationships it often makes more sense to tighten up before it gets that far: shorter payment terms, deposits or stage payments for larger jobs, and credit checks on new customers. One of the most effective protections is agreeing clear terms in writing at the start.
Are the late payment rules changing?
In March 2026 the government set out plans for a 60-day maximum payment term for business-to-business transactions with limited exemptions, mandatory statutory interest that could no longer be contracted out of and tougher reporting for large companies. These measures are not yet law and no start date has been confirmed.
Until they do the existing rules apply and because the rate is fixed by the base rate on 30 June or 31 December, any change from the Bank of England's 5 November decision would only feed through to debts falling overdue after the next reference date. Keep an eye on that if your cashflow is tight.
A simple credit control routine
- Agree payment terms in writing before work starts
- Send invoices promptly with the due date and any purchase order number on them
- Send a reminder shortly before the due date and a firmer one the day after
- Phone accounts payable once an invoice is a week overdue
- Send a formal letter claiming statutory interest and the fixed compensation if needed
Frequently Asked Questions.
For business-to-business debts the statutory rate is 8% above the Bank of England base rate. With the base rate at 3.75% on the reference dates that is 11.75% a year for debts falling overdue in 2026, unless your contract sets a different substantial remedy.
Need help?
If late payers are squeezing your cashflow and you would like help with forecasting, bookkeeping or setting up a tighter credit control routine in Xero, get in touch through our website. We can also act as a fractional finance director to help you plan around cashflow, not just report on it.
Book a free consultation: https://loveyouraccountants.com/contact.
Author
Rob Young
Rob is Managing Director at LYA, supporting ambitious businesses to scale with confidence through clear planning and proactive financial insight.
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