Late Payment of Commercial Debts (Interest) Act 1998

What the Act does

Section 1 adds a term to every contract the Act covers. Any qualifying debt carries simple interest from the day it is late.

That interest is called statutory interest. Nobody has to write it into the contract.

Section 5A adds a fixed sum on top of the interest. It covers part of the cost of chasing the money.

Who the Act covers

Section 2 applies the Act to contracts for goods or services between two businesses. Both sides must act in the course of a business.

• A plumber who bills a letting agent is covered.
• A wholesaler who supplies a café is covered.
• A sole trader who bills a limited company is covered.
• A sale to a private person is not covered.
• An employment contract is not a supply of services under the Act.

The Act is business to business only. Debts owed by consumers follow other rules and this page does not deal with them.

When statutory interest starts

Section 4 says interest starts the day after the relevant day. That day depends on what the contract says about payment.

Without an agreed date, the 30 days run from the later of delivery or the invoice. Write a clear due date on every invoice to avoid doubt.

The rate of statutory interest

The Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 sets the rate. It is 8% a year over the Bank of England official rate.

The reference rate is fixed twice a year. The Order uses the rate in force on 30 June or 31 December.

Bank Rate has been 3.75% since 18 December 2025, read on bankofengland.co.uk on 31 October 2026. It was 3.75% on 30 June 2026.

So a debt that becomes late between 1 July and 31 December 2026 carries 11.75% a year. The rate stays the same for the whole life of that debt.

A debt that becomes late from 1 January 2027 uses Bank Rate on 31 December 2026. Check the Bank of England page on that date.

How to calculate the interest

The interest is simple and daily. It never charges interest on interest.

1. Multiply the debt by the yearly rate to get the yearly interest.
2. Divide by 365 to get the daily interest.
3. Multiply by the number of days late.

Interest = debt × (Bank Rate + 8%) × days late ÷ 365.

The calculator at the top of this page does those three steps. It also adds the fixed sum and writes the message to send.

Worked example

A printing firm invoiced £4,800 to a retailer with a due date of 15 August 2026. The retailer paid on 31 October 2026.

The same firm is owed £12,500 that fell due on 30 September 2026. On 30 November it has run 61 days late.

The interest comes to £245.46 for those days. The fixed sum for a debt of £10,000 or more is £100.

The fixed sum for recovery costs

Section 5A gives the supplier a fixed sum once statutory interest starts. It is added to the interest, not taken from it.

The fixed sum is due once per debt. Each unpaid invoice is a separate debt with its own sum.

Section 5A(2A) also covers reasonable recovery costs above the fixed sum. Keep the receipts for those costs.

When a contract sets its own rate

Many contracts state their own late payment interest. The gov.uk guidance says statutory interest cannot be claimed when the contract sets a different rate.

Contracts with public authorities cannot use a lower rate than statutory interest. That point also comes from the gov.uk guidance.

How to claim statutory interest

1. Check that both sides are businesses and that the debt is late.
2. Work out the days late, the interest and the fixed sum.
3. Send a new invoice or a statement that adds the interest and the sum.
4. Remind the customer on fixed dates and keep a record of each reminder.
5. If nothing works, send a final demand before any court claim.

The gov.uk guidance suggests a new invoice when you add interest. Keep the original invoice number in the reference.

What to write when you claim

Keep the message short and factual. Give the invoice number, the days late and the new total.

Example message. Invoice 1043 for £4,800 was due on 15 August 2026. Under the 1998 Act it now carries £118.98 of interest and a £70 fixed sum. The balance as of today is £4,988.98.

The calculator above writes this text for you. Copy it or send it by WhatsApp in one tap.

England, Wales, Northern Ireland and Scotland

The Act applies across the United Kingdom. The 2002 Order that sets the rate extends to England, Wales and Northern Ireland.

For a contract under Scots law, check the Scottish rules on legislation.gov.uk before you claim.

Common mistakes

• Charging consumers under the Act. It covers business to business debts only.
• Using today's Bank Rate for an old debt. Use the rate fixed for the half year the debt fell late.
• Compounding the interest. Statutory interest is simple.
• Counting from the invoice date. Count from the day after the due date.
• Claiming the fixed sum once for many invoices. Each late invoice carries its own.
• Forgetting the contract rate. A rate in the contract replaces statutory interest.

Should you always charge it

The right exists from the first late day. Many firms still use it as leverage before they apply it.

A line on every invoice helps. Write that late payments carry statutory interest under the 1998 Act.

Customers who see that line before the due date tend to pay on time. It also makes the later claim less of a surprise.

A timeline for a late invoice

Most late invoices get paid after the second or third reminder. The claim for interest works best as a later step.

Keep every message and statement. A court will ask for the record of what was sent and when.

What to keep on file

• The contract or the order that shows the agreed payment date.
• The invoice with its number, date and due date.
• Proof of delivery of the goods or the service.
• Each reminder with its date and channel.
• Receipts for any recovery costs above the fixed sum.

Let the reminder go out on its own

Makatea sends the WhatsApp or email reminder before each invoice is due and again on fixed days after. When the customer pays, Makatea records the payment and stops the reminders. Try it free for 14 days, no card needed.