Late payment is a cash problem first and a legal problem a distant second. Most overdue invoices at an agency are late because nobody asked at the right time, the invoice went to the wrong inbox, or a purchase order number was missing. This guide covers the law you can fall back on and the process that means you rarely need to.
This is not legal advice. It summarises the UK rules as they apply to business-to-business debts. Check the official guidance on gov.uk, and speak to a solicitor before taking formal action.
Who does the Late Payment Act cover?
The Late Payment of Commercial Debts (Interest) Act 1998 covers debts between businesses for goods and services supplied under a commercial contract. If you are an agency or consultancy invoicing a company, a partnership or a public body, it applies. It does not cover money owed by consumers.
The Act gives you a right to claim statutory late payment interest and fixed compensation when an invoice is paid late. If your contract already sets out its own substantial remedy for late payment, such as a contractual interest rate, that generally applies instead. If you and the client agreed no payment date at all, the law sets a default period of 30 days.
How much is statutory interest?
Statutory interest is 8% a year above the Bank of England base rate. The base rate moves, so check the current figure on the Bank of England website before you calculate anything, and check gov.uk for which base rate applies to the period your debt fell due in.
Interest runs daily from the day after the invoice was due until the day it is paid. It is simple interest, not compound.
What fixed compensation can you add?
On top of interest, you can claim a fixed sum per late invoice to cover the cost of recovering it:
| Invoice value | Fixed compensation |
|---|---|
| Under £1,000 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
You can also claim reasonable recovery costs above the fixed sum, such as a collection agency’s fee, where the fixed amount does not cover what you actually spent.
How do you calculate late payment interest?
Work out a daily rate, then multiply by the number of days late. The formula is:
- Daily interest = invoice amount × (8% + base rate) ÷ 365
- Interest owed = daily interest × days late
A worked example, with figures invented for illustration. Take a 25-person agency with a £6,000 invoice that is paid 45 days after its due date. For this example only, assume a base rate of 4%. This is not the current rate; look up the real one before you use the formula.
- Statutory rate: 8% + 4% = 12% a year.
- Daily interest: £6,000 × 0.12 ÷ 365 = £1.97 (to the penny, £1.9726).
- Interest for 45 days: £1.9726 × 45 = £88.77.
- Fixed compensation for an invoice between £1,000 and £9,999.99: £70.
- Total the agency could claim on top of the £6,000: £158.77.
That is a real sum, but it is small next to the relationship. Which is why the process below matters more than the calculation.
What does a good credit control process look like?
A good credit control process is a fixed schedule of polite, specific contact that starts before the invoice is due and escalates slowly. Most agencies do fine with something like this:
| When | What happens | Tone |
|---|---|---|
| Before sending | Confirm the right contact, PO number and payment terms | Admin |
| 3 days before due | Friendly reminder with the invoice attached | Helpful |
| 1 day after due | Short note: “This fell due yesterday, can you confirm when it’s scheduled?” | Neutral |
| 7 days after due | Second email, copy the project contact | Firmer |
| 14 days after due | Phone call to accounts payable | Direct |
| 30 days after due | Statement of account, and mention of statutory interest | Formal |
| 45+ days after due | Final letter before action, owner-to-owner conversation | Formal |
Three habits make the schedule work. Send each step from a named person, not a no-reply address. Keep a log of every contact so anyone can pick up the account. And look at aged debt weekly, so a slipping client shows up while it is still a conversation.
How do you avoid chasing an invoice that has already been paid?
Check the payment status immediately before every reminder, not the night before. Chasing a paid invoice is the fastest way to annoy a good client, and it usually happens because the accounts system and the chasing tool disagree for a day.
The practical rules:
- Refresh the invoice’s status from your accounting system right before sending. If you cannot confirm it is still unpaid, hold the reminder.
- Keep one record per reminder sent, so the same step cannot go out twice.
- Pause chasing while a query or dispute is open. A client arguing about scope will not pay faster because of a reminder.
- Do not bulk-enrol old invoices into a new chasing schedule without looking at them first. Some will already be settled in ways the system does not know about.
How do you get paid without losing the client?
Treat late payment as a process failure before you treat it as bad faith. Most late payers are disorganised rather than hostile, and a firm, predictable routine fixes that.
Some things that help:
- Agree terms in writing at the start, including the payment period, the invoice contact and whether a PO is needed.
- Invoice promptly when a milestone is hit. A late invoice gets paid late.
- Separate the relationship from the chasing. The account lead keeps the project warm; accounts does the chasing; the owner steps in only at the final stage.
- Mention statutory interest before you charge it. A line on your terms and on the 30-day statement is often enough.
- Decide your policy in advance. Some firms always add interest past 30 days. Others waive it for a first offence. Either is fine if it is consistent.
If a client is routinely late, raise it at the next account review rather than in a reminder email. It is a commercial conversation about terms, deposits or payment on account, and it belongs with the person who owns the relationship.
Where OpsUPLOOP fits, and where it doesn’t
OpsUPLOOP runs overdue-invoice chasing as a configurable schedule of emails sent from a named person. Before each send it checks the invoice is still open and owed, it keeps a record of every reminder so the same step cannot go out twice, and setting a default schedule for a customer does not enrol invoices that already exist. You can rehearse a run and read every email it would send before switching it on. See OpsUPLOOP Billing for how chasing connects to billing and the pipeline.
It is not a debt collection service or a legal tool. It does not decide whether to claim statutory interest or compensation, and it does not give legal advice. Those calls stay with you, and a disputed debt still needs a person, and sometimes a solicitor.
Other questions
Can I claim late payment interest from a consumer?
No. The Act covers business-to-business debts only. Money owed by individual consumers falls under different rules.
Do I have to claim statutory interest if I am entitled to it?
No. It is a right, not an obligation. Many firms mention it in terms and on final reminders and then decide case by case whether to add it.
Can I charge the fixed compensation on every overdue invoice?
The compensation applies per invoice, so a client with three late invoices can face three amounts. Check the wording of the legislation or take advice before claiming across a long run of small invoices.
Is this guide legal advice?
No. It is a plain-English summary for UK business owners. For a disputed debt or a large claim, speak to a solicitor or read the official guidance on gov.uk.