Late payment: what you can actually charge

On a commercial debt the law already gives you interest and a fixed sum towards recovery costs, whether or not your contract mentions them. Almost nobody claims either, which is why late payment costs your customer nothing.

Problems, in order · Part of Outsourced General Counsel

A customer pays sixty days late. You chase twice, they apologise, they pay the invoice amount. Nothing else happens.

That is the whole problem. For the customer, paying you late was free. They held your money for two months, used it, and gave back exactly what they owed. Given that, a rational finance department pays you last every time, because there is no cost to doing so.

The law has provided the cost since 1998. Most businesses simply never charge it.

Can I charge interest on a late invoice if my contract does not mention it?

The entitlement is implied rather than negotiated:

The Act applies to contracts for the supply of goods or services where both parties are acting in the course of a business. It does not apply to consumers. The rate is set at 8% above the Bank of England base rate, and it is simple rather than compound interest, running from the day after payment was due.

At current base rates that is a meaningful number on a large invoice and a small one on a modest invoice. The point is rarely the interest itself. The point is that an invoice which accrues something is an invoice that moves up the payment run.

What else can I claim besides interest?

The fixed sum is the part almost nobody knows about:

The sum is £40 where the debt is less than £1,000, £70 where it is £1,000 or more but less than £10,000, and £100 where it is £10,000 or more. It is per invoice, not per customer, which matters if a customer is routinely late across many small invoices.

And where recovery actually costs you more than the fixed sum, the difference is recoverable too:

That subsection is why the professional costs of chasing a serious debt are not simply a deduction from what you recover.

Why almost nobody claims it

The entitlement is automatic. The claiming is not, and four things get in the way.

Fear of the relationship. The honest one. Nobody wants to charge interest to a customer who represents a fifth of revenue. This is a real commercial judgement, not a legal one, and the answer is usually to reserve the right explicitly rather than to waive it silently.

Nobody owns it. Finance issues invoices and chases them. Charging statutory interest feels like a legal act, so it sits between two functions and falls down the gap.

It looks like more work than it is. The calculation is simple and the entitlement needs no agreement. The reason it does not happen is that nobody has decided it should.

The contract appears to say otherwise. Sometimes a customer's standard terms purport to exclude or vary the right. The Act anticipates that, and a term is void where it is not a substantial remedy for late payment, but this is the point at which the answer depends on the actual wording in front of you.

Using it properly

The businesses that get paid on time do not usually charge interest often. They make it visible, early, and then behave predictably.

Put it on the invoice. A single line stating that the invoice is subject to statutory interest and a fixed recovery sum under the 1998 Act if unpaid by the due date. It changes nothing legally, and it changes the reading behaviour of whoever opens it.

Decide the policy once. At what age does an invoice start accruing? Who signs off on waiving it? A policy applied consistently is a commercial position; a threat made occasionally in frustration is not.

Reserve rather than waive. When you decide not to charge a good customer, say so: the interest is not being charged on this occasion, and the right is reserved. That keeps the deterrent alive without spending relationship capital.

Put it in the first letter before action. Interest and the fixed sum, itemised. It changes the number under discussion and signals that somebody is actually keeping the file.

Escalate on a timetable, not on mood. The most common failure in debt recovery is a chase sequence that varies with how busy and how irritated somebody is. A predictable escalation is what makes customers treat your due date as real.

HMRC and the Department for Business publish the current position and a calculator on gov.uk's guidance on late commercial payments, which is the quickest way to check the rate applying to a particular period.

None of this needs a lawyer standing behind every invoice. It needs somebody to own the position, write it down and apply it, which is the ordinary work of an outsourced General Counsel rather than a dispute.

Where a specialist is needed

Issuing proceedings, enforcing a judgment, and insolvency steps such as a statutory demand or a winding-up petition are litigation and specialist insolvency work. Dinmore Bell does not conduct litigation. It takes the matter to the point where proceedings are the only remaining step, instructs and controls the litigators where they are needed, and holds the commercial objective throughout.