Get paid on time: the late payment rules every small business can use

Ask any small business owner what keeps them awake, and late payment is near the top. You have done the work, sent the invoice, and the money does not arrive. Meanwhile you still have to pay suppliers, staff and yourself.

What many people do not know is that the law is on their side. When one business pays another late, the supplier can usually charge statutory interest and claim fixed compensation — even if the contract does not mention it.

This article covers business-to-business sales in the UK. It does not apply to sales to consumers.

When is a payment 'late'?

If you agreed a payment date, the payment is late the day after it. GOV.UK says agreed payment dates should usually be within 30 days for public authorities and 60 days for business transactions. Longer terms between businesses are allowed if they are fair to both sides.

If you did not agree a payment date, the law sets one: payment is late 30 days after the customer received the invoice or after you delivered the goods or service, whichever is later.

What you can claim

Statutory interest

You can charge interest at 8% plus the Bank of England base rate. You cannot claim statutory interest if your contract sets a different interest rate.

To work it out:

1. Add 8% to the base rate to get the yearly rate.
2. Multiply the debt by that rate to get a year's interest.
3. Divide by 365 to get the daily amount.
4. Multiply by the number of days the payment is late.

A worked example. Say the base rate is 3.75%. The statutory rate is then 11.75%. On an unpaid invoice of £2,000:

• a year's interest would be £2,000 × 11.75% = £235;
• that is about 64p a day (£235 ÷ 365);
• if the invoice is 45 days late, the interest is about £28.97.

Check the current base rate on the Bank of England website before you calculate. If you add interest, send a new invoice for it.

Fixed compensation

On top of interest, you can claim a fixed sum for the cost of chasing the debt — once for each late payment:

• £40 for a debt up to £999.99;
• £70 for a debt of £1,000 to £9,999.99;
• £100 for a debt of £10,000 or more.

You can also claim reasonable costs of recovering the debt beyond that, such as a collection agency's fees.

So in the example above, a £2,000 invoice that is 45 days late could be followed by a further invoice of about £28.97 interest plus £70 compensation.

Should you actually charge it?

That is a business decision. Charging interest to a good customer who is a few days late may cost you more in goodwill than it brings in. But knowing you can charge it changes the conversation — and for customers who are always late, it is a fair tool.

Many businesses use it this way: put the rule in their terms, mention it on the invoice, and only apply it when a payment is seriously late.

Five habits that get you paid faster

1. Agree terms before you start. Write the payment date on the quote and get the customer to accept it.
2. Invoice the same day. Every day you wait is a day added to the end.
3. Make it easy to pay. Put your bank details, the amount and the due date at the top of the invoice.
4. Ask for a deposit on larger or longer jobs.
5. Chase on a timetable. A friendly reminder a few days before the due date, another on the day, and a firmer one a week later.

A polite reminder you can copy

Hello, a quick note that invoice 1043 for £2,000 was due on 3 November and is now 14 days overdue. Could you let me know when it will be paid? Under the Late Payment of Commercial Debts (Interest) Act 1998, I may add statutory interest and a £70 recovery charge if it remains unpaid after 21 November. Thank you.

It is firm, specific and gives the customer a clear way to put things right — which is usually all it takes.