# Late payment of commercial debts: your statutory rights, explained

When a business customer pays you late, you are not at their mercy. A piece of UK legislation — the Late Payment of Commercial Debts (Interest) Act 1998 — gives a business a statutory right to claim interest and fixed compensation on a commercial debt that is paid late, whether or not the contract mentions it. Many companies never use it, often because they do not know it exists. This is an educational explainer of what the Act gives you and the figures that go with it. It is general information, not legal advice; for a specific dispute, take proper advice.

## What the Act covers

The Act applies to commercial debts — money owed between businesses for goods or services supplied in the course of business. It does not cover consumer debts; this is a business-to-business protection. Where it applies, it implies a right into the contract: if the customer does not pay by the agreed date, or by the default period the Act sets where no date is agreed, the debt is late and the statutory entitlements switch on automatically. You do not need a clause in your terms to rely on it — the right is statutory.

## Statutory interest: 8% above the base rate

The headline entitlement is interest on the overdue amount. Under the Act, statutory interest runs at **8% above the Bank of England base rate**. So the rate you can claim moves with the base rate: if base rate is, say, 4%, the statutory interest rate is 12%; if base rate changes, the figure you apply changes with it. The interest accrues on the unpaid sum from the day the debt becomes late until it is paid. It is simple interest on the debt, calculated day by day across the period it is overdue — a real, claimable cost the late payer has imposed on your business.

## Fixed compensation: a sum for each late debt

On top of the interest, the Act entitles you to a fixed sum of compensation for each qualifying late debt, to cover the cost and inconvenience of chasing it. The amount depends on the size of the debt:
- **£40** where the debt is under £1,000.
- **£70** where the debt is £1,000 or more but under £10,000.
- **£100** where the debt is £10,000 or more.

This is a flat entitlement per late debt, not per day, and it sits in addition to the statutory interest rather than instead of it. Where the reasonable cost of recovering the debt exceeds the fixed sum, the Act allows you to claim the difference as well. Small as the fixed figures are individually, across a run of late-paying customers they add up, and they make the point to a customer that late payment is not cost-free.

## A worked figure

A made-up example, to show the mechanics — illustrative only, not a real customer. Suppose a company is owed £6,000 on an invoice that is paid 30 days late, and the Bank of England base rate is 4%, so the statutory rate is 12%. Interest at 12% a year on £6,000 is £720 a year, which is roughly £1.97 a day; over 30 days that is about £59 in statutory interest. The debt is between £1,000 and £10,000, so the fixed compensation is £70. The company could therefore claim around £129 on top of the £6,000 — the interest plus the fixed sum. The arithmetic is simple once you have the base rate and the dates; the point is that the entitlement is concrete, not notional.

## How this fits the cashflow picture

The Act matters because late payment is one of the most common causes of a working-capital squeeze: you have done the work, the money is owed, and it simply has not arrived. Knowing your statutory rights is part of managing that — it gives you a basis to chase, a figure to put on the cost, and a lever in the conversation. It does not make the cash arrive sooner on its own, which is why a company facing a gap between work done and money in sometimes still needs to bridge it. That is the territory of [working-capital finance](/articles/working-capital-vs-term-loan), and the cashflow mechanics behind it are covered in the operator’s guide to [the cash-conversion cycle](https://credicorp.co.uk/guides/the-cash-conversion-cycle/). The two work together: assert your statutory rights on the late debt, and bridge the gap if the timing demands it.

## Putting a number on it

Because the interest depends on the base rate, the debt size and the number of days, it is worth working out the actual figure rather than guessing. The operator publishes a [late-payment interest calculator](https://credicorp.co.uk/calculators/late-payment-interest/) that applies the 8%-above-base-rate interest and the fixed compensation band for you, so you can see what a specific late debt entitles you to claim. Used alongside a clear, polite reminder to the customer, it turns a vague grievance into a precise, defensible figure.

## The honest summary

The Late Payment of Commercial Debts (Interest) Act 1998 gives a UK business a statutory right, on a late commercial debt, to interest at 8% above the Bank of England base rate and to fixed compensation of £40, £70 or £100 depending on the size of the debt — with reasonable recovery costs above that where they apply. It is automatic, it does not need a contract clause, and it puts a real number on the cost of being paid late. Know it, calculate it, and use it. It is general information rather than legal advice, so take proper advice on any specific dispute.

## Related
- [Working capital vs a term loan: matching finance to the need](/articles/working-capital-vs-term-loan)
- [When not to borrow: signs a short-term loan is the wrong answer](/articles/when-not-to-borrow)
- [Late-payment interest calculator (operator)](https://credicorp.co.uk/calculators/late-payment-interest/)
- [Guide: the cash-conversion cycle (operator)](https://credicorp.co.uk/guides/the-cash-conversion-cycle/)
- [Lending and regulation — Article 60B in plain English](/lending-and-regulation/)