Guide summary

Add the fixed sum to your claim: £40, £70 or £100 per debt, depending on the size of the debt
Claim reasonable recovery costs above the fixed sum, less the fixed sum itself
Interest is simple, so you never charge interest on interest
Keep the delivery note and invoice that prove the dates
Public authorities must pay valid, undisputed invoices within 30 days
The Small Business Commissioner is free, but only for businesses with fewer than 50 staff
Court time limit to claim: 5 years in Scotland, 6 years in Northern Ireland
A bill to cap payment terms is before Parliament, with no start date set

The Late Payment of Commercial Debts (Interest) Act 1998 writes a right to interest into contracts for goods or services where buyer and seller are both acting in the course of a business. A public authority buying from you counts as a business. You also get a fixed sum towards your costs of recovering the debt. You do not need to have put either in your contract.

The rules apply across the UK. They do not cover sales to consumers, consumer credit agreements or contracts that work as security for a loan.

Work out when the payment became late

Interest starts to run on the day after the payment day. That is the date you and the customer agreed or, if you agreed none, the end of the period that follows delivery and the customer having notice of the amount. Notice of the amount means the invoice, or a claim for a sum if the amount is not yet fixed.

Substantial contractual remedy test

When a contract term can replace or limit statutory late payment interest, and how long a payment period can run before statutory interest starts.

Under the Late Payment of Commercial Debts (Interest) Act 1998, a contract term that tries to exclude statutory interest is void unless there is a substantial contractual remedy for late payment. A term that varies the right to statutory interest is void unless the varied right, or the remedy overall, is substantial. Subject to that, the parties are free to agree what happens when payment is late.

A remedy counts as substantial unless both of these apply: it is not enough to compensate the supplier or deter late payment, and it would not be fair or reasonable to let it replace or vary statutory interest. Whether a remedy is substantial is judged on all the circumstances when the terms were agreed. In deciding fairness, the court has regard to:

the benefits of commercial certainty
the relative strength of the parties' bargaining positions
whether one party imposed the term to the other's detriment, including through standard terms
whether the supplier received an inducement to agree to the term

The Act also limits long agreed payment days. Where there is no agreed payment day, the relevant day is the last day of the 30-day period that follows the latest of performance, notice of the debt and the end of any acceptance procedure. The 30-day limit applies to public authorities. For other buyers a 60-day limit applies, but an agreed payment day later than that stands if it is not grossly unfair to the supplier. Whether a term is grossly unfair depends on all the circumstances, including whether it is a gross deviation from good commercial practice, the nature of the goods or services, and whether the buyer has an objective reason to depart from the statutory position.

Term excluding statutory interest: Void unless there is a substantial contractual remedy
Substantial remedy: Counts as substantial unless it is insufficient to compensate or deter and it would not be fair to let it replace statutory interest
Public authority buyers: Payment period cannot run beyond 30 days
Other buyers: Agreed payment day beyond 60 days stands only if not grossly unfair to the supplier
Acceptance or verification procedure: Capped at 30 days unless a longer period is expressly agreed and not grossly unfair

See what you can claim

Interest is simple, so you never charge interest on interest. A year's interest is the debt multiplied by the statutory rate. Divide that by 365 for a day's interest, then multiply by the number of days overdue.

Late payment interest rate

Default 8% over Bank Rate, set each half-year

Statutory interest rate: Default 8% a year over Bank Rate
Not applied to debts with: A substantial contractual remedy for late payment
Applies to: Business-to-business contracts, including public bodies
Interest type: Simple
Interest starting 1 January to 30 June: Bank Rate on the previous 31 December
Interest starting 1 July to 31 December: Bank Rate on the previous 30 June

Here is a worked example for a debt that starts to carry interest in 2026.

On top of interest you can claim a fixed sum for each debt, set by the size of the debt. If the fixed sum does not cover your reasonable costs of recovering the debt, you can claim the difference.

Late payment recovery costs

Fixed sums by debt size, plus reasonable extras

Debt under £1,000: £40
Debt £1,000 to £9,999.99: £70
Debt £10,000 or more: £100
Fixed sum becomes due: When statutory interest starts to run
Fixed sums per debt: One per qualifying debt
Recovery costs above the fixed sum: Reasonable costs, less the fixed sum

If your customer is a public authority

Prompt payment requirements for public contracts

Mandatory payment terms for public sector contracts under the Procurement Act 2023.

Payment period: 30 days
Clock starts: Later of receiving the invoice and the invoice's due date
Applies to: Valid invoices that the authority does not dispute
Sub-contracts: The same terms are implied into public sub-contracts
Late payment: You may claim statutory interest; it is not paid automatically
Government target: 90% of valid, undisputed SME invoices paid within 5 days

The Procurement Act 2023 implies a 30-day payment term into every public contract, and the same terms into public sub-contracts, whether or not the contract says so (sections 68 and 73). An authority that considers an invoice invalid or disputes it must tell the supplier without undue delay.

A valid invoice is either an electronic invoice in the required form, or one that gives the supplier's name, a description of the goods, services or works, the sum requested and a unique identification number.

Prompt Payment Policy (opens in a new tab)

Chase the money

Confirm the payment day

Use the date in your contract, or the 30 days from delivery and invoice if you agreed none. Interest runs from the day after, so keep the delivery note and invoice that prove the dates.
Ask for payment

Contact the customer by phone or email, then confirm in writing. Interest counts from the day after the payment day, not from the day you ask.
Work out the total

Add the invoice, the interest to date and the fixed sum. Use Bank Rate on 31 December for debts that start to carry interest from 1 January to 30 June, and Bank Rate on 30 June for those that start from 1 July to 31 December.
Send a new invoice or letter

Show the original amount, the interest, the fixed sum and the new total, with a deadline for payment. Keep a copy.
Escalate if they still do not pay

Raise the dispute with the Small Business Commissioner if you qualify, or make a court claim that includes the interest and the fixed sum.

Ask the Small Business Commissioner for help

The Small Business Commissioner looks at unresolved payment disputes between a small business and a larger customer.

Take the debt to court

If the customer will not pay, you can claim through the courts. Include the interest and the fixed sum in the claim.

Simple procedure

Sheriff court route for small debt claims.

Simple procedure limit: £5,000 or less
Where to claim: Sheriff court where the respondent lives or trades
How to claim: Civil Online
Fee, claim up to £300: £23
Fee, claim over £300: £127
Fees in force from: 1 April 2026
Next fee change: 1 April 2027
Time limit to claim: 5 years
Service by sheriff officer: £15 plus the officer's fee
Wait before enforcing: 4 weeks from the decision
Charge demands payment within: 2 weeks
Who enforces: Sheriff officer, not the court

Small claims in Northern Ireland

County court limit, time limit and enforcement.

Small claims limit: £5,000 or less, since 3 October 2022
Court: County court
Claim above the limit: Civil bill in the county court, up to £30,000
Claim over £30,000: Normally the High Court
Payment date in your letter: At least 7 days ahead
Time limit to claim: 6 years
A decree is: A county court judgment
Who enforces: Enforcement of Judgments Office, for a further fee

Know what may change

A bill before Parliament would cap how long a payment term can run.

Commercial Payments Bill

Introduced: House of Lords, 19 May 2026
Lords report stage: 15 September 2026
Lords third reading: 20 October 2026
Now in: House of Commons
Proposed payment term cap: 60 days
Proposed cap, public authorities: 30 days
Start date: None set, to be made by regulations

Check customers before you extend credit

Large companies and limited liability partnerships must publish reports on how quickly they pay, and you can search them on GOV.UK. The Fair Payment Code is a voluntary scheme run by the Office of the Small Business Commissioner. Its directory shows which businesses hold a Gold, Silver or Bronze award for paying suppliers promptly.

Legal basis

Primary legislation and key regulations

Procurement Act 2023 Primary 2023 · UK-wide LPCDIA 1998 Primary 1998 · UK-wide EA 2016 Primary 2016 · UK-wide The Limitation (Northern Ireland) Order 1989 Primary 1989 · UK-wide Prescription and Limitation (Scotland) Act 1973 Primary 1973 · UK-wide The Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 SI 2002 · UK-wide The Late Payment of Commercial Debts (Rate of Interest) (Scotland) Order 2002 Scottish SI 2002 · Scotland Late Payment of Commercial Debts Regulations 2013 SI 2013 · UK-wide

Browse UK legislation legislation.gov.uk

Official guidance

Business payment practices and performance: reporting requirements (opens in a new tab)

Publication · GOV.UK

Fair Payment Code (opens in a new tab)

GOV.UK

Commercial Payments Bill [HL] (opens in a new tab)

bills.parliament.uk

Make an enquiry to the Small Business Commissioner (opens in a new tab)

GOV.UK

Bank of England: Bank Rate (opens in a new tab)

www.bankofengland.co.uk

Late commercial payments: charging interest and debt recovery (opens in a new tab)

GOV.UK

EU Directive 2011/7/EU (Late Payment Directive) (opens in a new tab)

eur-lex.europa.eu

Claim interest and costs when a customer pays late

Work out when the payment became late

See what you can claim

If your customer is a public authority

Chase the money

Confirm the payment day

Ask for payment

Work out the total

Send a new invoice or letter

Escalate if they still do not pay

Ask the Small Business Commissioner for help

Take the debt to court

Know what may change

Check customers before you extend credit

Legal basis

Official guidance

Next steps

Start importing goods to the UK

Transfer ownership of your business

Close your business partnership

Related guides in Tax & Finance

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Take a customer to the small claims court for an unpaid invoice

Join framework agreements and approved supplier lists

Become a MOD supplier

Prepare a winning tender response