📌 Key Takeaways
- ✓Under the Late Payment of Commercial Debts (Interest) Act 1998, UK businesses can charge interest at 8% plus the Bank of England base rate on overdue B2B invoices.
- ✓You are legally entitled to claim fixed statutory debt recovery compensation: £40 (debts under £1,000), £70 (debts £1,000 to £9,999.99), and £100 (debts £10,000 or more).
- ✓Unless agreed otherwise in contract, payment terms default to 30 days after the invoice date or delivery of goods/services.
- ✓Statutory interest accumulates on a daily basis: (Debt × Statutory Interest Rate) ÷ 365 × Days Overdue.
- ✓Always start with polite reminders at Day 7 before escalating to formal statutory notices and re-issuing an updated invoice.
1. UK Statutory Rights: The Late Payment Act
Under the Late Payment of Commercial Debts (Interest) Act 1998, UK businesses have a statutory right to claim compensation and charge interest on overdue commercial invoices from other businesses and public authorities.
Unless your contract specifies longer terms, payment becomes legally overdue 30 days after the customer receives the invoice or goods/services.
The statutory interest rate is fixed at 8% plus the official Bank of England base rate for commercial debts. In addition to daily interest, creditors are legally entitled to add fixed debt recovery compensation to cover administrative credit control costs.
| Amount of Unpaid Debt | Statutory Compensation Fee | Example Interest (Base 4.5% + 8% = 12.5%) |
|---|---|---|
| Up to £999.99 | £40.00 | £500 debt overdue 30 days = £5.14 interest + £40 fee |
| £1,000.00 to £9,999.99 | £70.00 | £2,500 debt overdue 30 days = £25.68 interest + £70 fee |
| £10,000.00 or more | £100.00 | £15,000 debt overdue 30 days = £154.11 interest + £100 fee |
2. The Mathematical Daily Interest Formula
Statutory interest accumulates on a strict daily basis from the day after the invoice was due:
1. Identify Total Interest Rate: 8% statutory addition + Current Bank of England Base Rate (e.g. 8% + 4.5% = 12.5% annual rate).
2. Daily Interest Formula: (Gross Debt Amount × Statutory Rate) ÷ 365 days = Daily Interest Charge.
3. Total Interest Due = Daily Interest Charge × Number of Days Overdue.
For example: An overdue invoice of £2,000 at 12.5% annual interest generates £0.6849 per day. If unpaid for 45 days, total interest equals £30.82, plus the £70.00 statutory compensation fee, making the revised balance £2,100.82.
Statutory late payment interest and compensation fees are outside the scope of VAT. Do not add 20% VAT to the interest charge.
3. Copy-Paste Overdue Invoice Email Templates
Effective credit control balances firmness with professional relationship preservation. Use this 3-stage escalation sequence:
Stage 1 (Day 7 Overdue — Gentle Courtesy Follow-up): "Subject: Friendly Reminder: Invoice [INV-001] for [Company Name] Hi [Name], I hope you’re having a productive week. Just a quick check-in regarding invoice [INV-001] for £[Amount], which fell due on [Due Date]. I’ve attached a copy for your reference. Could you confirm when payment is scheduled? Thank you!"
Stage 2 (Day 14 Overdue — Firm Commercial Follow-up): "Subject: Overdue Notice: Invoice [INV-001] - [Amount] Dear [Name], We have not yet received payment for invoice [INV-001] (£[Amount]), which is now 14 days overdue. Please remit the outstanding balance to the bank details listed on the invoice by [Date within 3 days]. Please let us know if there are any queries regarding this account."
Stage 3 (Day 30 Overdue — Formal Notice with Statutory Interest): "Subject: Formal Demand & Statutory Interest: Invoice [INV-001] Dear [Name], Invoice [INV-001] (£[Amount]) remains unpaid despite previous reminders. Under the Late Payment of Commercial Debts (Interest) Act 1998, we have now applied statutory compensation of £[40/70/100] plus daily statutory interest of £[X/day]. Please find the revised statement attached for £[New Total]. Remittance is required within 7 days to avoid legal escalation."
4. Issuing a Revised Invoice with Interest
When statutory fees are applied, re-issuing an updated invoice PDF provides clear audit documentation for both finance departments.
With UtilityFinch Free Invoice Generator, you can quickly add supplementary line items for "Statutory Late Payment Compensation (1998 Act)" and "Late Payment Interest (X days @ X%)" without signing up or uploading accounting documents to external servers.
Invoice Generator
Generate professional, print-ready PDF invoices locally in your browser with automatic VAT and itemized totals.