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If a business customer pays your invoice late, UK law entitles you to charge statutory interest on the overdue amount. This right is established under the Late Payment of Commercial Debts (Interest) Act 1998. This guide explains when and how to apply statutory interest, how to calculate it accurately, and what to consider when dealing with late payments.
Contents:
Statutory interest is the legally defined rate you can charge on overdue payments from other businesses or public sector organizations. It applies to commercial contracts for the supply of goods or services and is intended to deter late payments and compensate suppliers for the delay.
Understanding the applicable statutory interest rate is essential, as it ensures that any interest charged is legally compliant and justifiable.
Contractual interest refers to the interest rate agreed upon by two parties within a written contract, such as payment terms or loan agreements. This rate must comply with applicable usury regulations or fair trading laws, which limit the amount of interest that can be lawfully charged. Unlike statutory interest, contractual interest offers greater flexibility but requires clear contractual terms and thorough documentation.
In summary, statutory interest is imposed by law, while contractual interest is privately agreed between upon parties. Both may apply depending on the nature of the agreement and the applicable legal framework.
You can charge statutory interest if:
If a payment date was agreed upon, the payment is late after that date. If no payment date was agreed, the payment is late 30 days after either:
This is outlined in the UK government’s guidance on late commercial payments. (Government Digital Service, 2016).
To calculate the statutory interest on a late payment: Interest = (debt x interest rate x number of days late) x 365
Example:
Debt: £1,000
Bank of England base rate: 0.5%
Statutory interest rate: 0.5% + 8% = 8.5%
Days late: 50
Calculation:
Annual interest: £1,000 × 8.5% = £85
Daily interest: £85 / 365 ≈ £0.23
Interest for 50 days: £0.23 × 50 = £11.50
In addition to interest, you are entitled to claim a fixed sum for the cost of recovering a late commercial payment:
This is stipulated under the Late Payment of Commercial Debts Regulations 2013.
Payt’s accounts receivable software helps businesses get their invoices paid up to 50% faster. By automating payment reminders, correctly applying statutory interest, and providing clear visibility of outstanding invoices, you can avoid unnecessary payment delays.
With Payt, you’ll spend less time chasing late payments while maintaining professional and customer-friendly communication. This strengthens client relationships and keeps your cash flow healthy.
Want to find out more about our accounts receivable software? Download our brochure below.
No, the statutory interest provisions apply only to business-to-business transactions and transactions with public sector organizations.
No, statutory interest is calculated as simple interest, not compounded.
Payment terms longer than 60 days are permitted only if expressly agreed and not grossly unfair to the supplier. This is in line with the Late Payment of Commercial Debts Regulations 2013 .
