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What interest can you charge on late payments?

From time a customer may pay you late, and you may be ok with that.  But when the problem becomes persistent, it can effect your own cash flow and the ability to run your own business.  However, you can reduce the problem and its effects because you are legally entitled to charge interest on any overdue payments due to you.

When is payment considered late?

Payment is considered to be late when it has not been received within the agreed payment terms, which are usually within 30 days for dealing with public authorities, and within 60 days for business transactions.  Longer payment terms can be agreed, but they must be fair to both businesses.

If there is no agreed payment date, then the law says the payment is late 30 days after either the customer gets the invoice or 30 days after you deliver the goods or provide the service, whichever is later.

What interest can you charge on the late payments?

You can charge what is known as ‘statutory interest’ – which is 8% plus the Bank of England base rate for business to business transactions. If a different rate is specified in the contract then you cannot charge statutory interest, you must use the specified rate, but statutory interest does not to be specified in a contract in order for you to charge it.

We recommend that you include a note that interest will be charged – either at a specified or statutory rate – in any contracts or invoices that are sent to customers so that they are aware – but there is no obligation to do so and its absence does not prevent you charging the interest.

You should send a new invoice to the client for the interest charged, specifying the period for which the interest relates.

Can I charge for debt recovery costs?

You can also charge a business a fixed sum for the cost of recovering a late commercial payment on top of any interest charges you apply.

The amount that you are allowed to charge depends on the amount of debt you are recovering. You can only charge the business once for each payment:

Amount of debt What you can charge
Up to £999.99 £40
£1,000 to £9,999.99 £70
£10,000 or more £100

These amounts are set by late payment legislation.

If you’re a supplier, you can also claim for reasonable costs each time you try to recover the debt and more details on that can be found here.