Late payment: what the law actually lets you charge

A customer paying 40 days late is not just an inconvenience, it is an unfunded loan your business has made to someone else. UK law gives you two specific things you can charge, and most businesses never use either, usually because nobody is sure what the rules allow.

Under the Late Payment of Commercial Debts legislation, interest runs on a commercial invoice once it is overdue. The rate is the Bank of England base rate plus 8 percentage points, calculated daily on the outstanding amount from the day after payment was due. You do not need a clause in your contract for this to apply, it is a statutory right between businesses.

You can also charge a fixed sum for the cost of recovering the debt. It is tiered by the size of the invoice: 40 pounds for a debt under 1,000 pounds, 70 pounds for a debt between 1,000 and 9,999.99 pounds, and 100 pounds for anything of 10,000 pounds or more. That is per invoice, not per customer, and it sits on top of the interest.

Where businesses go wrong is on the payment terms themselves. If no terms were agreed, the default is 30 days from either the delivery of the goods or the date the customer received the invoice, whichever is later. Agreed terms longer than 60 days between businesses can be challenged as grossly unfair unless both sides genuinely negotiated them.

The honest limitation is that a right to charge is not the same as getting paid. Issuing a statutory interest notice to your largest customer may cost you more in goodwill than it recovers in cash, and most business owners know this instinctively, which is why the right goes unused. It works best on accounts you are prepared to lose, or as a formal step before recovery action.

That is the gap invoice finance fills. Rather than chasing the money or charging for the delay, you take the cash against the invoice when you raise it, and the facility carries the wait. Your customer keeps their terms, and your business stops funding them for free.

If late payment is squeezing you now, the practical order is: check what terms were actually agreed, work out what you are owed and how old it is, and decide whether you want the cash sooner or the argument. We can price a facility against your ledger either way.