When another business pays you late, the law lets you add interest and a fixed sum towards the cost of chasing. This guide sets out what you can claim, how to work it out and what to do if the invoice is still unpaid.
The Act applies to a contract for the supply of goods or services where the buyer and the supplier are each acting in the course of a business.1 It does not cover sales to consumers. Consumer credit agreements and contracts that work as a mortgage, pledge, charge or other security are excluded.1
It applies in England, Wales, Scotland and Northern Ireland.14
If you agreed a payment date, interest runs from the day after it.2 If you agreed no date, the law treats the payment as late 30 days after the customer gets the invoice, or 30 days after you deliver the goods or provide the service if that is later.3
Agreed terms have limits. Between businesses, a payment date should usually be within 60 days. You can agree a longer period, but it must be fair to both businesses. A public authority must usually pay within 30 days.2 3
Statutory interest is simple interest at 8% a year over the Bank of England base rate.4 5 The base rate that counts is the one in force on 30 June for interest that starts to run between 1 July and 31 December, and the one in force on 31 December for interest that starts to run between 1 January and 30 June.6
The base rate on 30 June 2026 was 3.75%,7 so the statutory rate for interest that starts to run between 1 July and 31 December 2026 is 11.75%. For interest that starts to run from 1 January 2027, it depends on the base rate on 31 December 2026.
To work it out, multiply the amount owed by the rate to get a year’s interest, divide that by 365 for a day’s interest, then multiply by the number of days the payment is late.5
A £5,000 invoice fell due on 31 August 2026 and was paid 45 days late. Interest started to run on 1 September 2026, so the rate is 11.75%.
The customer owes £142.43 on top of the £5,000.
On top of interest, you can charge a fixed sum for each late invoice. The Act sets it by the size of the debt:8
You can charge it only once for each payment.9 If your reasonable costs of recovering the debt are more than the fixed sum, you can also claim the difference.8
You and your customer can agree your own terms for late payment, including your own interest rate. Where you agree a contractual remedy that is substantial, statutory interest does not apply unless you agree otherwise.10 A term that tries to exclude statutory interest without a substantial remedy in its place is void.10
The Act gives no figure for what counts as substantial. It treats a remedy as substantial unless it is not enough to compensate the supplier or to deter late payment, and it would not be fair or reasonable to let it replace statutory interest.11 If your terms set a low rate or none at all, ask a solicitor to check them.
Send the customer a new invoice for the interest and the fixed sum.5 Show the original invoice number, the amount, the date it fell due, the rate and the number of days, so they can check the figure.
If the invoice is still unpaid, GOV.UK explains how to make a court claim for money in England and Wales. Scotland and Northern Ireland have their own process.12
The Commercial Payments Bill entered Parliament in the House of Lords on 19 May 2026.13 The Government say it will bring in a 60-day cap on payment terms for large firms paying smaller suppliers, make interest on late payments mandatory at 8% above the Bank of England base rate and give the Small Business Commissioner powers to investigate, adjudicate disputes and fine persistent late payers.13
On 6 October 2026 the Bill was waiting for its third reading in the House of Lords. It still has to pass the House of Commons and is not yet law.15 Until it is, the rules above apply.
When chasing payment falls to the person who also does the work, prices the next job and answers the phone, the reminder goes out when someone remembers. That is how a 30-day invoice turns into a 75-day one without anyone deciding it should.
The Act gives you a remedy once an invoice is late. It does nothing to stop it getting late, and working out interest by hand for each invoice is one more job for the same person.
We build invoice chasing that runs from the accounting software you already use, such as Xero, QuickBooks or Sage. Reminders go out on the dates you set, in your wording, get firmer if the invoice stays unpaid and stop when it is paid. Replies come back to your normal inbox, so you deal with any query yourself.
See how invoice chasing automation works, or read what late payments do to a construction business’s cash flow.
Book a free 30-minute call, or ring Dave on 01858 589789. We will look at how your invoices are raised and chased today and tell you what we would change.
This guide explains the law in general terms as it stood on 6 October 2026. It is not legal advice. For a disputed or large debt, speak to a solicitor.
