Late payment interest and recovery costs: what can your business claim?

When another business pays your invoice late, you may be entitled to claim more than the original amount owed. UK legislation can allow you to add statutory interest, fixed compensation and, in some circumstances, reasonable additional recovery costs.

These rights can help compensate you for the time, administration and expense involved in chasing overdue commercial debts. They may also encourage customers to treat your payment terms more seriously.

You do not always need to begin court proceedings or appoint a debt recovery collection agency before claiming these amounts. However, you must confirm that the debt qualifies, check your contract and calculate the claim correctly before adding charges.

Late payment is a serious issue for UK businesses. Research published by the Office of the Small Business Commissioner in July 2025 estimated that businesses were owed £26 billion in late payments at any given time. More than 1.5 million businesses were affected annually, while affected businesses spent an average of 86 hours each year chasing overdue payments.

When does a commercial payment become late?

Your payment usually becomes late when the agreed payment deadline passes without the customer paying the full amount.

For business-to-business transactions, agreed payment periods should normally be no longer than 60 days. You can agree to a longer period, but it must be fair to both businesses. Public authorities should normally pay within 30 days.

When no payment date has been agreed, the payment generally becomes late 30 days after the later of:

• The date your customer receives the invoice
• The date you deliver the goods or complete the service

This means you should keep evidence showing when the invoice was sent, when it was received and when the work or delivery was completed. These records can become important if the customer challenges your calculation. ([GOV.UK][2])

Which transactions are covered?

The statutory rules generally apply to commercial contracts for the supply of goods or services. They may cover transactions between:

• One business and another business
• A business and a public authority
• Sole traders, partnerships and limited companies acting commercially

They do not generally apply to ordinary consumer debts. For example, you should not automatically use commercial late payment legislation to charge an individual customer who purchased something for personal use.

You should also review your written contract before claiming statutory interest. If the contract already includes a different interest rate or an alternative substantial remedy for late payment, the contractual arrangement may apply instead.

How much statutory interest can you claim?

Statutory interest on qualifying business-to-business debts is 8 percentage points above the Bank of England base rate.

As of 12 June 2026, Bank Rate is 3.75%. This produces an annual statutory interest rate of 11.75%, although you should check the applicable rate when calculating a claim because Bank Rate can change. ([GOV.UK][3])

You can calculate the interest using this general method:

• Multiply the overdue balance by the annual interest rate
• Divide the result by 365 to find the daily interest
• Multiply the daily amount by the number of days overdue

For example, suppose your customer owes you £5,000 and the applicable annual statutory rate is 11.75%.

The annual interest would be:

£5,000 × 11.75% = £587.50

The daily interest would be:

£587.50 ÷ 365 = approximately £1.61

If the invoice remained unpaid for 60 days, the interest would be approximately:

£1.61 × 60 = £96.60

Interest normally continues to accumulate until the outstanding balance is paid. If you decide to add statutory interest, GOV.UK advises sending the customer a new invoice showing the additional amount. ([GOV.UK][3])

Can you claim fixed debt recovery compensation?

In addition to statutory interest, you can usually claim a fixed amount towards the cost of recovering each qualifying late commercial payment.

The amount depends on the value of the debt:

You can normally charge the relevant amount once for each qualifying late payment. You cannot keep adding another £40, £70 or £100 every time you send a reminder about the same payment. ([GOV.UK][4])

Returning to the earlier £5,000 example, you may be able to claim:

• The original £5,000 invoice
• Approximately £96.60 in statutory interest after 60 days
• £70 in fixed recovery compensation

The total claim would therefore be approximately £5,166.60, before considering any qualifying additional recovery costs.

Can you recover costs above the fixed amount?

You may also be entitled to claim reasonable recovery costs when the fixed £40, £70 or £100 payment does not cover the actual cost of recovering the debt.

These costs could potentially include reasonable expenditure connected with:

• Professional debt collection support
• Solicitors’ correspondence
• Tracing a customer who has changed address
• Preparing formal recovery communications
• Other necessary steps taken to secure payment

You should not assume that every internal expense, professional fee or administrative charge will automatically be recoverable. The cost should be genuinely connected with recovering the debt, reasonable in value and supported by evidence.

Keep copies of invoices, engagement letters, correspondence, call records and details of the work completed. This documentation can help you explain the additional amount if the customer disputes it.

What if your contract includes late payment charges?

Your contract may already state what happens when a customer pays late. It could include:

• A contractual interest rate
• A fixed administration fee
• Recovery and legal cost provisions
• The right to suspend further work
• The withdrawal of credit facilities

You generally cannot claim statutory interest when your contract already provides a different interest rate. However, contractual wording must be clear, reasonable and legally enforceable.

Review the agreement that was accepted when the order was placed. Do not rely only on wording added to an invoice after the contract was formed, as those terms may not have been incorporated into the original agreement.

Where the amount is substantial or the contract is unclear, consider obtaining legal advice before demanding additional charges.

How should you notify the customer?

Your demand should make it easy for the customer to understand what they owe and why.

Include:

• The original invoice number and date
• The original payment deadline
• The unpaid principal balance
• The applicable annual interest rate
• The number of overdue days
• The interest calculated to date
• The fixed recovery compensation
• Any reasonable additional recovery costs
• The revised total due
• A new deadline for payment

Keep the tone firm and professional. You should also explain that interest may continue to accrue until payment is received.

Should you always claim interest and compensation?

You may decide not to enforce every available charge immediately. Your approach may depend on the customer relationship, the amount owed and whether the late payment was an isolated administrative mistake.

However, ignoring repeated late payment can encourage poor behaviour. It also means your business absorbs the cost of financing the customer’s operations.

A balanced process may involve:

• Confirming that the invoice is accurate
• Sending a reminder shortly before the due date
• Contacting the customer as soon as payment becomes overdue
• Explaining the interest and recovery charges available to you
• Applying the charges when reminders are ignored
• Escalating persistent or high-value debts promptly

Consistency is important. Your customers should understand that payment deadlines are contractual commitments, not optional targets.

Protect your business from the cost of late payment

Statutory interest, fixed compensation and reasonable recovery costs can help you reduce the financial impact of overdue commercial invoices. However, the strongest approach is to combine these rights with clear contracts, accurate invoicing, regular credit checks and a structured collection process.

If an overdue invoice is affecting your cash flow, Taurus Collections can help you assess the debt, communicate with the customer and pursue the payment professionally. Contact Taurus Collections today to discuss your outstanding invoices and take the next step towards recovering the money your business is owed.