The Late Payment of Commercial Debts Act: How UK Contractors Can Claim Statutory Interest

Late payment is one of the most persistent threats to the financial health of UK trade contractors. According to the Federation of Small Businesses, small businesses in the UK are owed billions of pounds in overdue invoices at any given time, and the construction sector is consistently among the worst affected. What many contractors do not realise is that Parliament gave them a powerful tool to deal with late payers over two decades ago: the Late Payment of Commercial Debts Act 1998, as amended, which allows you to charge statutory interest and compensation without needing a contractual clause and without going to court first.

What the Act Provides

The Late Payment of Commercial Debts (Interest) Act 1998 applies to contracts for the supply of goods or services between businesses in the United Kingdom. Where a commercial debt is not paid by the agreed payment date — or, if no date was agreed, within thirty days of delivery of the goods or services, or within thirty days of receipt of the invoice, whichever is later — the creditor is entitled to claim statutory interest at the rate of 8 percentage points above the Bank of England base rate. As of early 2026, with the base rate at approximately 4.5 per cent, the statutory interest rate is around 12.5 per cent per annum. This rate applies from the date the debt became due until the date it is paid. The interest accrues automatically by operation of law; you do not need a clause in your contract permitting it, and you do not need to take any procedural step to trigger the entitlement. The only requirement is that the debt is a qualifying commercial debt — that is, a debt arising under a business-to-business contract for goods or services.

Fixed Compensation Sums

In addition to statutory interest, the Act entitles the creditor to a fixed sum of compensation for every late payment. The compensation amount depends on the size of the debt: for debts under £1,000, the fixed compensation is £40; for debts between £1,000 and £9,999.99, it is £70; and for debts of £10,000 or more, it is £100. This compensation is intended to cover the administrative costs of chasing the debt and can be claimed for each invoice that is paid late, not just once per debtor per contract. A contractor with five overdue invoices each between £1,000 and £9,999 could therefore claim £350 in compensation alone, on top of the statutory interest. The compensation is payable without the creditor having to demonstrate any actual loss, and it applies automatically when the debt falls overdue.

Reasonable Costs of Recovery

Beyond interest and fixed compensation, the Act also allows the creditor to recover reasonable costs of recovering a debt where those costs exceed the fixed compensation sum. If you had to instruct a solicitor to send a demand letter, or engage a debt recovery specialist, those costs can be added to the claim provided they are genuinely reasonable in the context of the amount of the debt and the recovery action taken. This provision is less automatic than the interest and fixed compensation — it requires you to have actually incurred the costs and for those costs to be proportionate — but it reinforces the principle that the debtor, not the creditor, should bear the economic consequences of late payment.

How to Claim Statutory Interest and Compensation

Claiming under the Act does not require litigation, a court order, or even a contractual right. The simplest approach is to send a demand letter to the debtor stating that payment is overdue, setting out the amount of the original invoice, the payment due date, the statutory interest rate that applies, the amount of interest accrued to date, and the applicable fixed compensation sum. The letter should give a specific deadline for payment and state that you reserve the right to issue court proceedings if payment is not made. Many debtors will pay promptly when confronted with a formal demand that references the Act, because the additional costs accrue daily and the creditor's legal position is unambiguous. If the debtor does not pay, you can issue a claim in the County Court — or the Small Claims Court for debts up to £10,000 — for the original invoice amount, the accrued interest, and the compensation sum. Court fees are recoverable if you win.

Contractual Clauses and the Act's Limits

The Act allows parties to agree different payment terms in their contract, but there are limits. A contractual clause that excludes or varies the Act's provisions must provide a substantial contractual remedy for late payment in order to override the statutory right. Simply agreeing to a longer payment period — sixty days rather than thirty, for example — is permissible. But a clause purporting to entirely exclude the right to claim interest is void unless the alternative remedy provided is substantially equivalent or better. Courts have consistently taken a dim view of contractual attempts to remove the Act's protections, particularly where there is a significant imbalance in bargaining power between the parties. The Act also does not apply to consumer contracts — only to contracts between businesses. A plumber invoicing a domestic homeowner cannot use the Act; a plumber invoicing a property management company can.

Practical Considerations for Contractors

For trade contractors, the most effective use of the Act is as a deterrent rather than as a litigation tool. Including a statement on every invoice that statutory interest will accrue under the Late Payment of Commercial Debts Act 1998 if payment is not made by the due date signals to clients that you know your rights. Many clients in the construction sector are aware that CIS and DRC compliance is complex enough without adding late payment disputes, and a clear reference to the Act often prompts timely payment. If a client does fall into arrears, sending a formal late payment demand promptly — rather than waiting months — limits the time the debt is outstanding and signals that you are a contractor who takes payment terms seriously. The longer a debt is left unpaid, the harder it becomes to recover.

How QuotCraft Automates Late Payment Management

QuotCraft tracks payment due dates for every invoice you raise and flags overdue invoices automatically. When a payment falls past its due date, QuotCraft can generate a formal late payment demand letter that calculates the statutory interest to date, includes the applicable fixed compensation sum, and formats the letter in language consistent with a claim under the 1998 Act. The platform's dunning tools allow you to set up an automated sequence of reminders — from a polite first reminder a few days after the due date, through to a firm statutory demand — so that chasing payment does not require manual effort for every overdue invoice. For contractors with a high volume of invoices, this automated approach means no overdue debt is inadvertently overlooked, and the paper trail created by QuotCraft's sent communications serves as contemporaneous evidence in the event that court proceedings become necessary.