Late Payment Interest Calculator UK

The right exists whether your contract mentions it or not

The Late Payment of Commercial Debts (Interest) Act 1998 gives a business supplying another business a statutory right to interest on a debt paid late, plus a fixed sum in compensation for the cost of chasing it. It applies automatically. You do not need a clause in your terms, you do not need the customer to agree, and you do not need to have warned them in advance.

Interest runs at 8% above the Bank of England base rate from the day after payment was due until the day it is paid. The fixed compensation is a separate amount on top of the interest, and it is due per invoice rather than per customer or per claim.

The rate is fixed twice a year, not daily

This is where most late payment calculations go wrong, including several online tools. The statutory rate does not track the base rate as it moves. It is set using the base rate in force on the 30 June or the 31 December immediately before the debt became late, and that rate then applies for the whole of the following six month period.

So a debt that fell due in September uses the base rate as it stood on the previous 30 June, even if the Bank of England has since cut or raised it twice. Using today’s rate instead produces a figure that is simply wrong, and a customer or their solicitor will spot it. That is why the calculator asks you for the rate rather than assuming one.

The compensation is per invoice, and it adds up

On top of the interest you can claim a fixed sum for each late invoice, on a three step scale. It is £40 where the debt is under £1,000, £70 where the debt is £1,000 or more but under £10,000, and £100 where the debt is £10,000 or more.

Because it applies per invoice, a customer sitting on twelve small monthly invoices owes twelve separate compensation payments. On invoices of £800 each that is £480 in compensation against interest that might only come to £60. For businesses invoicing in small regular amounts, the compensation is usually the larger part of the claim by a wide margin.

You can also claim reasonable recovery costs

Since 2013 the fixed sum has been a floor rather than a ceiling. Where your reasonable costs of recovering the debt exceed the fixed compensation, you can claim the difference. That covers things like a debt recovery agent’s fee or solicitor’s costs incurred in chasing the money, provided the amount is reasonable and you can evidence it.

The calculator shows the fixed sum only, because anything beyond it depends on what you actually spent. If you have instructed anyone to chase the debt, add those costs to the claim and keep the invoices.

Default payment terms if nothing was agreed

Where the contract is silent, payment falls due 30 days after the later of delivery of the goods or service and receipt of the invoice. Where terms were agreed, those apply, but a business to business payment term longer than 60 days is open to challenge as grossly unfair unless it can be objectively justified. Public sector contracts are held to 30 days.

A contract cannot simply exclude the statutory right either. An attempt to contract out is void unless the contract provides a substantial contractual remedy for late payment in its place, which in practice means a comparable rate of interest rather than a token one.

Whether to actually charge it is a commercial decision

Having the right and using it are different things. Charging statutory interest on a good customer who paid three days late will cost you more in goodwill than it recovers. Charging it on a customer who has stretched you to ninety days twice running is a reasonable response, and often the letter alone gets the invoice paid without the interest ever being collected.

The most effective use of this in practice is as leverage rather than as income. A quantified figure, correctly calculated and cited to the Act, changes the tone of a conversation with a finance department in a way that a chaser email does not. That is what the letter above is for.

If late payment is the real problem, interest will not fix it

Statutory interest compensates you after the event. It does not put money in the bank when you need it, and if your customers routinely pay at sixty or ninety days while your own costs fall due weekly, the gap is a funding problem rather than a collections problem.

That is what invoice finance exists for: the funder advances most of the invoice value when you raise it rather than when the customer pays. Our payroll funding calculator shows the size of the gap where the cost being covered is wages, which is the most common version of this. For a general working capital shortfall, the business loan calculator prices a term facility to bridge it, and the consolidation calculator is worth a look if the shortfall has already been patched with several expensive facilities.

What this does not cover

• Consumer debts. The Act applies to business to business contracts only.
• Recovery costs above the fixed compensation sum, which depend on what you actually spent.
• Contractual interest, where your own terms set a rate. If they do, you generally claim under the contract instead.
• Interest on judgment debts, which is governed separately.
• Whether the debt itself is disputed. Statutory interest applies to an undisputed sum properly due.
• Construction contracts under the Housing Grants, Construction and Regeneration Act, which has its own payment regime.

If the cash flow gap is the issue

This calculator is provided for illustration and general information only. It is not legal advice and the draft letter is a starting point rather than a legal document. Whether a debt qualifies, when it fell due, whether terms were validly agreed and whether any sum is disputed are all questions of fact and law on which you should take advice before making a claim or issuing proceedings. Figures depend entirely on the dates, amounts and base rate you enter. Bolton Business Finance Ltd is a commercial finance broker and not a lender, is not a firm of solicitors, and is not authorised or regulated by the Financial Conduct Authority. We arrange non-regulated, business purpose commercial finance only.