The Late Payment of Commercial Debts Act: what UK small businesses need to know in 2026

What the Act covers

The Late Payment of Commercial Debts (Interest) Act 1998 is a UK statute that gives businesses a legal right to charge interest on overdue invoices from other businesses. It was introduced to combat the UK's late payment culture, and it remains one of the most underused protections available to small businesses.

The Act has been amended and strengthened over the years, most recently by the Late Payment of Commercial Debts Regulations 2013, which brought it in line with the EU Late Payment Directive. Despite Brexit, these provisions remain in UK law.

Who it applies to

The Act applies to business-to-business (B2B) transactions only. Both the supplier and the customer must be acting in the course of a business. This includes:

• Limited companies invoicing other limited companies
• Sole traders invoicing businesses
• Freelancers invoicing clients (provided the client is a business)
• Partnerships invoicing other businesses
• Public sector bodies paying late to suppliers

It does not apply to invoices sent to consumers or private individuals. If your customer is a member of the public buying for personal use, the Act does not cover that transaction.

Statutory interest: the rate

You can charge interest at 8% per annum above the Bank of England base rate. The base rate as of early 2026 is 4.5%, making the current statutory interest rate 12.5% per annum.

Interest starts accruing from the day after the agreed payment date. If no payment date was agreed, the default is 30 days after the invoice was delivered or the goods/services were provided, whichever is later.

The base rate is set by the Bank of England's Monetary Policy Committee and changes periodically. Always check the current rate before calculating. You can use our statutory interest calculator to do the maths for you.

Fixed compensation

On top of interest, the Act entitles you to a fixed sum of compensation for each overdue invoice. This is intended to cover the administrative cost of chasing payment:

This compensation is payable per invoice, not per debtor. If a client has three overdue invoices, you can claim compensation on each one separately.

How to claim

You do not need to do anything formal to invoke the Act. Simply include the statutory interest and compensation in your chase emails or in a formal demand letter. You might write something like:

"Under the Late Payment of Commercial Debts (Interest) Act 1998, I am entitled to charge statutory interest of [rate]% on this outstanding invoice, along with fixed compensation of [amount]. The total now owing is [amount]."

In practice, most businesses use the Act as leverage rather than actually collecting the interest. The mere mention of it in a follow-up email often accelerates payment. For a step-by-step chasing guide, see our article on how to chase a late invoice in the UK.

Common mistakes

1. Thinking you need a contract clause. You do not. Statutory interest is an automatic right. You do not need to mention it in your terms and conditions, quote it on your invoice, or agree it in advance. However, including it in your terms can serve as a useful reminder to clients.

2. Accepting lower contractual interest. Some large businesses insert their own payment terms with interest rates below 8% + base rate. Under the Act, any contractual term that is not a "substantial remedy" for late payment can be challenged. If a client's terms offer 2% interest on a 90-day payment period, that is unlikely to qualify.

3. Assuming it applies to consumers. The Act is B2B only. If you are invoicing a private individual, you will need to rely on your contract terms or common law remedies instead.

4. Not keeping records. If you ever need to pursue a claim through the courts, you will need evidence of the invoice, the agreed payment terms, and your chasing communications. Keep everything.

5. Waiting too long. The limitation period for debt claims in England and Wales is six years from the date the debt became due. In Scotland, it is five years. Do not let old debts expire.