Late Payment Charges

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Late Payment of Commercial Debts


Alarmed at the levels of small business late payment, the United Kingdom government introduced legislation in 1998 to counter late payment. The Late Payment of Commercial Debts (Interest) Act provides suppliers with several rights.

Late Payment Interest

You can claim interest and debt recovery costs if a business customer is late paying you for goods or services. Statutory late payment interest is chargeable for every day that a payment is overdue. The interest is calculated at the rate of 8% on top of the Bank of England base rate.

For example, if your business was owed £1000 and the payment was 25 days late, the statutory interest would be : £1000 x 8.5% = £85 per annum (25/365) * £85 = £5.82 statutory interest chargeable

Debt Recovery Charges

Debt recovery costs are allowable on late payments. The government sets out a scale of costs starting at £40 for a debt up to £999, through to a debt recovery charge of £100 on amounts outstanding of £10k or more. For example, if your business was owed £1000, the relevant charge is £70.

Other Late Payment Charges

The late payment charges can also include the reasonable costs of recovering a debt (for example court fees, debt collection agency costs etc). So in our example above, an invoice paid 25 days late would attract a statutory charge £75.82 (ie £5.82 interest plus £70 debt recovery costs) plus any associated debt collection costs.

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