Recovering the Cost of Waiting: Late-Payment Interest and Compensation for UK Firms in 2026

Late payment is often treated as an unavoidable feature of commercial life. The invoice is issued, the due date passes, a reminder is sent and the firm waits. What is less often discussed is that the UK has a statutory regime designed to compensate suppliers for the cost of waiting. For professional services firms, the entitlement is frequently overlooked because it sits outside the invoice, accrues quietly and requires a deliberate decision to claim.

The statutory basis

The Late Payment of Commercial Debts (Interest) Act 1998 implies a term into qualifying business-to-business contracts that statutory interest is payable on late payment. The rate is set at 8 per cent above the Bank of England base rate. The Act also provides for fixed compensation for the cost of recovering the debt, and for reasonable costs of recovery where the fixed sum is insufficient.

The regime applies across the UK, although procedural differences exist in Scotland. It does not apply to consumer contracts. Contract terms can specify a different interest rate, but the substitute must be a substantial remedy; a token rate may not displace the statutory entitlement.

When the entitlement arises

The right to claim usually depends on a valid invoice, agreed payment terms and a debt that has become due. The supplier must have performed its side of the contract: goods delivered, services completed or milestones accepted. A genuine dispute about the work can pause or defeat the claim until the dispute is resolved.

Firms should check the contract, purchase order and any supplier terms for payment periods. Where no period is agreed, the statutory default applies. The due date, rather than the date of the reminder, is the starting point for interest.

Calculating interest and compensation

Statutory interest accrues daily on the outstanding principal. A practical formula is:

Principal × (8% + base rate) × days overdue ÷ 365

Fixed compensation is added according to the size of the debt: £40 for debts up to £999.99, £70 for debts between £1,000 and £9,999.99, and £100 for debts of £10,000 or more. Compensation is a fixed sum per invoice, not a percentage.

For example, an invoice of £5,000 that is 60 days overdue, with a base rate of 4 per cent, would attract interest at 12 per cent: £5,000 × 12% × 60 ÷ 365 = £98.63. Fixed compensation of £70 would bring the total to £168.63. The base rate used should be checked against the rate applicable to the due date under the regulations.

Evidence to keep alongside the invoice

A claim is easier to enforce when the file is complete. Keep the signed contract or accepted terms, the purchase order, the invoice and proof of delivery or acceptance. Retain correspondence about the debt, including reminders and any promise to pay. A short calculation sheet showing principal, rate, days and compensation should sit with the file. If the debt is disputed, record the dispute and the firm's response separately.

A practical chase sequence

A consistent sequence reduces the risk of escalation without warning. A courtesy reminder three days before the due date is often enough to catch administrative delays. On the day after the due date, send a firm but neutral reminder with the invoice attached. At seven days overdue, confirm the amount outstanding and ask for a payment date. At fourteen days, issue a formal notice that statutory interest and compensation may be claimed. At twenty-one days, send a letter before action. At twenty-eight days, consider a claim or instructed recovery.

Each step should be logged. The sequence should be proportionate to the debt and the relationship. A long-standing client with a temporary processing issue may need a phone call rather than a formal letter.

Model wording for a letter before action

A letter before action should be clear, factual and compliant with any relevant pre-action protocol. It should identify the debt, the contract, the amount claimed and the deadline for payment. A short form of wording is:

"We refer to invoice [number] dated [date] for [amount], which remains unpaid. Payment was due on [date]. Under the Late Payment of Commercial Debts (Interest) Act 1998, statutory interest and fixed compensation are payable. We calculate the amount currently due as [principal], interest of [amount] and compensation of [amount], totalling [total]. Unless payment is received by [date], we reserve the right to issue proceedings without further notice."

The letter should invite the debtor to raise any genuine dispute immediately. It should also state where payment can be made and who to contact.

When enforcement helps and when it harms

Claiming statutory interest is a commercial decision as well as a legal one. It is most straightforward where the debt is undisputed, the client is unresponsive and the relationship is not strategically important. It can be counterproductive where the client is a major source of future work, the delay is caused by a genuine administrative error or the sum involved is small relative to the cost of enforcement.

A sensible approach is to separate the debt from the relationship. Pursue the principal firmly, mention the statutory entitlement as a consequence rather than a threat and offer a payment plan where appropriate. If the firm decides not to claim interest, record the reason. A waiver should be a deliberate concession, not an oversight.

Make the entitlement part of the process

The firms that recover late-payment interest most effectively are not necessarily the most aggressive. They are the ones with clear terms, accurate invoices, a disciplined chase sequence and a named owner for escalations. In 2026, treating statutory interest as a routine part of credit control rather than an awkward afterthought will improve both cash flow and the firm's negotiating position.