Statutory interest on late commercial payments
Checked 17 July 2026 · How we check our figures
What it is
The Late Payment of Commercial Debts (Interest) Act 1998 gives a business supplier a statutory right against a business customer who pays late: interest at 8 per cent over the Bank of England reference rate, a fixed compensation sum per invoice, and reasonable recovery costs beyond it, all without a word in the contract. Suppliers reach for it as interest on an unpaid invoice. The trap sits in the reference rate: it is not the base rate on the day, but the base rate frozen on the last 30 June or 31 December before the interest started to run, a fixing even a court has tripped over.
Reading the notice
There is no official form here; the demand letter is the supplier's own, and its interest line must name the frozen reference: the base rate in force on 30 June for interest starting between 1 July and 31 December, or on 31 December for interest starting between 1 January and 30 June (Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002, SI 2002/1675).
The compensation line follows the invoice size in three steps: 40 pounds under 1,000, 70 pounds from 1,000 to under 10,000, 100 pounds at 10,000 or more, per invoice, once interest has started to run (s. 5A of the 1998 Act).
The costs line is open-ended where the fixed sum falls short: reasonable recovery costs above the compensation are claimable for contracts from 16 March 2013 (SI 2013/395).
The decision in front of you
Claim the statutory package and the arithmetic is mechanical: 8 per cent over the frozen reference on the debt, per day, from the day after the payment fell due, plus the fixed sum per invoice; the calculator at /fines/late-payment-interest runs the dated figures.
Rely on the contract instead where it provides its own late payment terms: the statute yields only to a substantial remedy, one that actually compensates or deters, ss. 8 and 9 of the 1998 Act; a token clause does not oust the Act.
Fold the claim into a court claim if the invoice itself is contested: statutory interest travels with the debt, and the judgment world has its own interest regime thereafter, the judgment interest calculator's territory.
Do nothing and the right simply idles: it survives for 6 years with the debt, s. 5 Limitation Act 1980, but unclaimed interest presses no one, and the fixed sums are per invoice, not per reminder.
What happens next
A paid debt does not bury the claim: the interest and compensation remain claimable after the principal arrives, within the limitation window; whether pressing them is worth the relationship is a commercial call the Act leaves to the supplier.
A court applying the Act must use the frozen reference, not the rate from time to time: the Technology and Construction Court itself slipped on this in A and V Building Solution v J and B Hopkins [2024] EWHC 2295 (TCC); the Order's wording, not the slip, is what governs.
The regime is business to business only: consumer debts fall outside the 1998 Act, and their interest questions run on contract and the courts' general powers.
The numbers
Statutory interest: 8 per cent per annum over the frozen Bank of England reference rate (SI 1998/2765 art 4; SI 2002/1675).
Fixed compensation per invoice: 40, 70 or 100 pounds by debt size, under 1,000, to under 10,000, and 10,000 or more (s. 5A of the 1998 Act).
The reference rate in force this half-year: see the calculator at /fines/late-payment-interest, figures dated there.
The deadlines
Interest starts the day after the payment fell due; where the contract fixes no date, the Act's default period applies, 30 days from delivery or invoice, whichever is later (s. 4 of the 1998 Act; gov.uk).
The reference freezes on the last 30 June or 31 December before interest starts, and stays frozen for that debt (SI 2002/1675).
The claim itself runs on the ordinary 6-year limitation clock with the debt, s. 5 Limitation Act 1980.
What people get wrong
Calculating at the base rate from time to time: the 2002 Order fixes the reference at the half-year mark, and a claim built on the moving rate is wrong in law, as the 2024 TCC case shows.
Claiming one compensation sum for a running account: the fixed sums attach per qualifying invoice, and a stack of small invoices carries a stack of 40 pound sums, not one.
Assuming a contract clause always displaces the Act: only a substantial remedy ousts the statutory package, ss. 8 and 9, and a nominal rate can leave the 8 per cent standing.
Authority
Late Payment of Commercial Debts (Interest) Act 1998, ss. 4, 5A, 8 and 9; Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 (SI 2002/1675); SI 1998/2765; SI 2013/395; s. 5 Limitation Act 1980; A and V Building Solution v J and B Hopkins [2024] EWHC 2295 (TCC); gov.uk