Late Payments – When Your Company Isn’t Paid On Time

The question of late business payments has been discussed for a number of years, and The Late Payment of Commercial Debts Act 1998 was introduced to help address the problem over twenty years ago, but it still persists. About 50,000 companies a year close as a consequence of big businesses delaying payments to them, with listed companies often the worst culprits.

Statutory interest

Some commercial contracts will contain terms in relation to payment of interest when any payments become overdue. However, when the contract is a verbal one, or there are no written terms, then there are also rules in law that allow you to charge what is known as ‘Statutory Interest’.

These rules, as far as commercial contracts are concerned, are covered by the 1998 Act, which has two main purposes. The first is to compensate creditors for the late payment of commercial debts, and secondly, it is meant to act as a deterrent for late payment.

When does the Late Payment of Commercial Debts (Interest) Act 1998 apply?

The Act applies when:

  1. There is a commercial supply of goods and/or services – this means business to business transactions.
  2. When the terms of business or the contract do not contain any clauses covering late payment and interest.

What is the rate of Late Payment Interest?

Late Payment Interest is an interest rate of 8% above the Bank of England Base Rate (currently 0.75%).


If your business was owed £1,000 today and the payment was late, provided there was no clause in the Contract covering late payment and interest, you could charge the following:

  • Late Payment Interest at a rate of 8.75% = £1,000 x 0.0875 = £87.50 per annum = 24p per day

When does a commercial payment become late?

Unless there are specific terms in the contract setting out when the payment must be made (a lot of businesses will state on their invoice when payment is expected) then payment is deemed legally late when 30 days have passed after:

  1. The customer receives the invoice; or
  2. The date the goods or services are delivered (if this is later).

Additional sums recoverable under the 1998 Act

The 1998 Act also carries an additional penalty for late payments.

This means that between £40 and £100 is recoverable as compensation in addition to the interest rate claimed. It depends on how much the debt is for:

  1. Up to £999 – £40 per invoice.
  2. £1,000 to £9,999.99 – £70 per invoice.
  3. £10,000 or more – £100 per invoice.

Finally, you are also entitled to claim your reasonable costs for the time that you expend in trying to recover the debt. This can include the cost of any credit control procedures that your business needs to undertake, as well as the cost of instructing a solicitor to recover the debt on your behalf.

How we can help

At Nelsons, our Debt Recovery team in Derby, Leicester and Nottingham provide a bespoke service for our clients.

We deal with the full debt recovery process on your behalf, from making initial calls to your debtor, through to issuing Court proceedings and enforcement of the debt. Should your matter be disputed, we are able to refer it to one of our dispute resolution solicitors for their advice.

For further information, please call 0800 024 1976 or contact us via our online enquiry form.

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