When an invoice is overdue, it's natural to wonder whether you can add interest. For business customers, the law gives you that right in many cases. For homeowners, it's different. Here's how it works.
Statutory interest for business customers
GOV.UK explains that if another business pays you late for goods or a service, you can usually charge statutory interest. This is 8% plus the Bank of England base rate for business-to-business transactions.
There are two important limits:
- You can't claim statutory interest if your contract sets a different interest rate. Your contract rate applies instead.
- If you have a contract with a public authority, you can't use a lower interest rate.
Check the current base rate on the Bank of England website before you work out what's owed.
How to work out the interest
GOV.UK gives a worked example. If you were owed £1,000 and the Bank of England base rate were 0.5%:
- Annual interest: 8% + 0.5% = 8.5%, so £1,000 × 0.085 = £85 a year.
- Daily interest: £85 ÷ 365 = about 23p a day.
- After 50 days late: 50 × 23p = £11.50.
Use the real base rate and your own invoice amount. GOV.UK says that if you decide to add interest, you should send a new invoice for the money you're owed.
Fixed compensation (debt recovery costs)
As well as interest, you can usually charge a business a fixed sum towards the cost of recovering the debt. The amounts are set by late payment legislation:
- £40 for debts up to £999.99
- £70 for debts from £1,000 to £9,999.99
- £100 for debts of £10,000 or more
You can only charge this once per payment.
When is a payment "late"?
If you agreed a payment date, it's late after that date. If you didn't agree one, GOV.UK says payment is late 30 days after the customer gets the invoice, or after you provide the service if that's later. Putting a clear due date on every invoice avoids any argument.
What about homeowners?
The statutory interest rules on GOV.UK are for business-to-business transactions. They don't give you a right to add interest to a homeowner's bill. If you want to charge interest to consumers, it would need to be part of terms they agreed to in advance, and those terms must be fair. Get advice before you rely on this.
Should you actually charge it?
Often, the threat is more useful than the money. Adding £11.50 of interest may sour a relationship with a good customer who's simply disorganised. Many tradespeople send a polite reminder first, using our late payment letter, and only claim interest and compensation from businesses that repeatedly pay late or ignore reminders.
Read the full GOV.UK guide to late commercial payments before you add charges.
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Frequently asked questions
Can I add interest to an invoice for a homeowner?
The statutory interest rules are for business customers. For homeowners, you'd need fair terms agreed in advance. Get advice first.
Do I have to tell the customer before adding interest?
GOV.UK says to send a new invoice if you decide to add interest. Many businesses also mention it in a final reminder.
Can I charge both interest and compensation?
For business customers, you can usually claim both statutory interest and the fixed compensation amount.
This guide is general information, not tax or legal advice. Rules change, so check GOV.UK for the latest position.