When a customer fails to pay your invoice on time, you may be entitled to charge more than just the original amount. UK law provides specific rights to businesses dealing with late commercial payments. Understanding these rights can help you recover not only the principal debt but also compensation for the delay.
Statutory Interest on Late Payments
Under the Late Payment of Commercial Debts (Interest) Act 1998, you are entitled to charge statutory interest on overdue commercial debts. The rate is 8% above the Bank of England base rate. This applies automatically to business-to-business transactions — you don't need a specific clause in your contract. The interest runs from the day after the payment was due until the day payment is made.
Statutory Compensation
In addition to interest, you can claim a fixed sum as compensation for the cost of recovering the debt. The amount depends on the size of the debt:
- Debts up to £999.99: £40 compensation
- Debts from £1,000 to £9,999.99: £70 compensation
- Debts of £10,000 or more: £100 compensation
This compensation is per invoice, so if multiple invoices are overdue, you can claim multiple fixed sums.
Contractual Interest
If your contract specifies a higher rate of interest for late payment, you may be able to claim that rate instead of the statutory rate. However, the rate must be a "substantial remedy" under the legislation — unreasonably high rates may be challenged. Most well-drafted commercial contracts include a late payment interest clause at a commercially reasonable rate.
Recovery Costs
If you engage a debt collection agency or solicitor to recover the debt, you may also be able to claim reasonable recovery costs from the debtor. These costs must be reasonable and proportionate to the debt. At Hays Collections, we can advise you on what recovery costs may be recoverable in your specific situation.
How to Claim
You don't need to go to court to claim statutory interest and compensation. Simply add the amounts to your invoice or statement and demand payment. If the debtor disputes the additional charges, you can pursue them through the county court or, for larger debts, through legal proceedings.
Practical Considerations
While you have these legal rights, consider the commercial relationship. Adding statutory interest and compensation may strain your relationship with the customer. However, for persistent late payers or significant overdue debts, asserting your rights sends a clear message that you take payment seriously.
At Hays Collections, we help businesses recover unpaid invoices along with all applicable statutory interest and compensation. Contact us to discuss your specific situation.
