Late Payment Compensation

Have you been paid late on commercial invoices?

Your business could be due tens of thousands in compensation!

For a free assessment of the potential financial compensation you are owed, please call us on 0330 053 9263 or email us or use our contact form.

Your Rights

Businesses are legally entitled to compensation on late paid business invoices.

Important legislation was introduced almost two decades ago to combat the late payment of debt.

The United Kingdom was one of the first countries in the European Union to implement late payment legislation to help promote a culture of prompt payment. There has been a statutory right to interest for late payment for small firms owed money by large firms or the public sector since 1 November 1998, when the Late Payment of Commercial Debts (Interest) Act 1998 came into force.

The Late Payment of Commercial Debts (Interest) Act 1998 had two purposes. Firstly, to provide compensation to creditors for the late payment of debts. Secondly, to discourage late payment of invoices.

In brief, for invoices that are not paid on time, the act enables you to claim interest and compensation even if you had no such provision was in your contract.

On the 7th August 2002. The Late Payment of Commercial Debts Regulations 2002 were added to legislation and it was amended to allow small businesses to charge each other statutory interest, as well as large businesses and the public sector, for the late payment of commercial debt.

The legislation provided for interest to be a statutory right, claimed at 8% over the Bank of England base rate and also for three tiers of compensation. £40.00 compensation can be claimed for debts under £1000.00, £70.00 for debts under 10,000 and £100.00 for debts over £10,000. There is no minimum debt value. If you invoiced your client for just £1.50 but they paid you late then you are still entitled to £40 compensation.

Each transaction can be viewed as a individual debt so effectively the compensation can be calculated and applied to each individual invoice. If you have invoiced a client many times over the last six years then the compensation due could be considerable.

In fact a forward thinking business owner would make sure they invoiced each separate item on a separate invoice rather than issuing a single invoice for multiple items. By doing so they would make it clearer that each item was a separate transaction and due its separate compensation should the invoice be paid late.

It is however limited to the commercial supply of goods and services to businesses and does not apply to goods or services provided to consumers.

If you sell to consumers you currently have no additional statutory support  to your own terms and conditions. However if you sell to businesses you have a number of valuable aids.If you sell to consumers, you cannot claim compensation, nor can you claim your collection costs on late payment, unless it was agreed contractually beforehand.

For a free assessment of the potential compensation you are due, please call us on 0330 053 9263 to have a confidential no-obligation discussion on the Late Payment Compensation you are due. Alternatively, either email us or use our contact form.

The act provided that if no payment terms were agreed prior to trading, then the default period was set at 30 days.

Interest and compensation can be claimed even if the principal debt has been paid. One can retrospectively go back up to six years to claim interest and compensation on invoices that were paid late. They are a statutory right and no contract can block access to them, although a contract could go conceivably go beyond them.

On the 16th March 2013, The late payment of commercial debts regulations 2013  were  introduced for England, Wales and Northern Ireland. Changes to the legislation were tabled at European level. Consultation ensued and the existing legislation was beefed up by The Late Payment of Commercial Debts Regulations 2013 to allow you to also claim your reasonable third party costs of collecting the debt where these exceed the compensation.  For example, if you use the services of a debt recovery agency, you can now add that to your claim.

The maximum for fair payment terms were also set.

It was stated that payment credit terms should not exceed 60 days unless both parties agree and that the extension beyond 60 days was justifiable and was not grossly unfair. If you are dealing with a public body, payment terms cannot exceed 30 days.

The statutory right to claim interest, compensation and the other entitlements are not compulsory and it is for the supplier to decide whether or not to use rights made available. Part of maintaining any successful business is good cashflow management and the late payment legislation can help you with your credit management.

The compensation provisions are still little used by suppliers who do not want to damage the relationship with their customers and are usually only claimed by those in the know once the relationship has soured beyond repair. However CPA would be happy to help businesses collect the compensation to which they are entitled, and this is particularly useful respecting former customers whom you are no longer trading with. It is important to act now before some of them could go out of business – then it will be too late….

The Late Payment of Commercial Debts Regulations 2013


The Late Payment of Commercial Debts Regulations 2002


Late Payment of Commercial Debts (Interest) Act 1998


The explanation of the late payment legislation set out in this guide refers exclusively to England and Wales.

In Northern Ireland and Scotland, the late payment legislation is very similar, however due to differences in legal proceedings and the impact of devolution, it is essential that businesses and the public sector in either Northern Ireland or Scotland seek appropriate guidance there. We will seek to work closely with the devolved Governments to ensure that the approach to the interest rate and other entitlements is co-ordinated and consistent.

Businesses involved in commercial contracts with businesses and/or a public sector body not domiciled in England, Wales, Northern Ireland or Scotland, should make sure that they know what their rights are under the late payment legislation of the jurisdiction to which the contract would be subject if a dispute were to arise.

Any commercial contract made under the law of another member of the European Union, will have access to entitlements resulting from late payment legislation, which are similar to those identified in this section.


The statutory compensation is not the only way to remedy late payment.

A supplier and purchaser can make their own arrangements for a remedy to late payment. This is known as contractual interest. If they do make their own arrangements for contractual interest, the late payment legislation will not apply. However, if they do not make arrangements, the remedies for late payment provided by the late payment legislation will apply.

To prevent purchasers abusing the right to agree their own arrangements with the supplier, any such contractual remedy for late payment must be “substantial” otherwise it will be void and the debtor will be unable to rely on it. It will be struck down by the courts and the terms of the late payment legislation will apply to the contract.

Any contract terms are void if they –
(a) confer a contractual right to interest that is not a substantial remedy for late payment of the debt, or
(b) vary the right to statutory interest so as to provide for a right to statutory interest that is not a substantial remedy for late payment of the debt unless the overall remedy for late payment of the debt is a substantial remedy.

How will the courts know whether a remedy is substantial or not?

In determining whether a remedy is substantial or not, the courts will consider all the circumstances, including the rate of interest that applies to late payments and the length of credit periods. Purchasers should not negotiate longer credit periods to avoid the possibility of late payment.

Where a credit period is considered to be excessive, the courts may strike it down and replace it with the 30 days default period provided by the late payment legislation.

It will be for the supplier to show that a remedy is not substantial (although the purchaser may have to provide evidence that it is fair and reasonable in the circumstances). The court will then have to judge whether, in all the circumstances (including what is usual for that sector of business), the remedy meets the criteria of a “substantial remedy” set out above. The court will take into account such factors as whether there was equality of bargaining position between the parties and whether standard terms have been imposed.

Examples of contract terms which a court might declare void, to the extent that they relate to late payment because they result in there being no substantial remedy for late payment, might include:

    • a credit period that is significantly different from custom and practice in that industry;
    • a credit period that is significantly different from other supply contracts operated by the purchaser;
    • an interest rate on late payment, significantly lower than the statutory rate, that fails to act as a deterrent to the purchaser paying late because it is lower than the purchaser’s theoretical (or actual) cost of agreed borrowing;
    • an interest rate on late payment, significantly lower than the statutory rate, that fails to recompense the supplier for being kept from their money, because it is below the supplier’s theoretical (or actual) cost of agreed borrowing;
    • an interest rate on late payment, significantly lower than the rate used in other supply contracts operated by the purchaser or than is normal in that sector of the economy;
    • a contract term that has the effect of reducing the amount of interest that can be claimed, such that the compensation for late payment is insufficient to recompense the supplier or to act as a deterrent to late payment;
    • excessive information requirements that must be fulfilled under the contract before any credit period might start.

Whether the purchaser had given any benefit in return for the term in question would be relevant. However, it must be stressed that the courts will look at the issue of a substantial remedy for late payment on a case-by-case basis.

For a free assessment of the potential financial compensation you are owed, please call us on 0330 053 9263 or email us or use our contact form.

When can you claim Late payment interest and reasonable debt recovery costs?

Claim(s) can be made once a payment is deemed late. Remember that if your contract makes provision for late payment interest (and we recommend that you do not make contractual provision but rather rely on the act), the statutory right to interest will not apply but you will have to rely on the interest rate in the contract.  However this doesn’t give you license to have a much higher contractual rate because that could be challenged as unreasonable. Hence why we recommend that you do not make contractual provision but rather rely on rate set in the act, because why would you want to set the interest at a lower rate?

You could always recover statutory legal costs incurred. However since 16th march 2013 you can now claim additional recovery fees under the late payment of commercial contracts 2013 so you will be better off using third parties to handle the collection rather than collecting yourself as you can now add their collection costs to the debt and recover it from your debtor.

When is a payment late?

Where there is an agreed credit period, and the supplier has agreed, either in writing or orally, a credit period with the purchaser, the payment is late if it is made after the last day of the credit period.

If no credit period has been agreed, then the Act sets a default period of 30 days after which interest can run. This default period does not constitute a statutory credit period. Where no credit period is agreed in a contract, the principal debt will still become due from the moment the goods are delivered or the service performed.

The 30-day default period starts running from the later of the actions:

the delivery of the goods or the performance of the service by the supplier; or
the day on which the purchaser has notice of the amount of the debt. A payment is late once the agreed credit period or the default period has expired.

How do I collect it?

The interest and compensation are payable by law. It is up to the supplier to decide whether or not to enforce this right. It is good business practice to agree payment terms “up-front”, preferably in writing. You could also agree interest and compensation provision or alternatively indicate that you will rely on the statutory rights by adding to your invoice “We understand and will exercise our statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to agreed credit terms.”

If the purchaser pays late, then the supplier should make a written demand for the interest, compensation and from 16th March 2013 onwards, any additional recovery costs.

A supplier has six years in England, Wales and Northern Ireland, and five years in Scotland, in which to make the claim. Receivers or liquidators of a business may pursue its purchasers for interest on late payment going back over this period. Businesses may also claim interest after they have stopped supplying a purchaser. Purchasers who wish to avoid future claims for interest should pay their bills on time.

The six-year period is derived from case law and the Limitation Act 1980.

A purchaser may not agree with an interest charge (for example, if the goods delivered were faulty and had to be repaired, or they were delivered late). If this happens, the purchaser may negotiate with the supplier to reduce or amend the interest charge.

Sometimes the purchaser may be unable to reach any agreement with the supplier. If this happens, and once all collection methods and negotiations have been exhausted, if the supplier considers that his/her claim for interest and/or compensation for debt recovery costs is a proper one, he/she can go to court or consider the following actions:

  • to withhold the supply of further goods or services until interest is paid;
  • to refuse to trade on credit terms with the purchaser in the future
  • to negotiate with the purchaser to ensure that future invoices are paid on time.
  • If the purchaser does not pay the interest and/or compensation for debt recovery costs, the supplier can pursue the claim through the courts.

The right to interest and compensation can be sold or transferred to another party. If you are due late payment compensation and interest on invoices that were paid late then you can assign this to a third party. The Credit Protection Association would be happy to of assistance in collecting your late payment compensation in this manner.

For a free assessment of the potential financial compensation you are owed, please call us on 0330 053 9263 or email us or use our contact form.

Don’t I risk antagonising my customers if I use the legislation?

Using the legislation is your statutory right and is not designed to jeopardise existing customer relationships. Rather than seeking to encourage claims for interest and/or debt recovery compensation, the legislation’s primary aim is to deter companies from paying their bills late. By treating the legislation as an integral part of your payment terms, customers will become educated to the fact that this is part of the way that you like to do business.

It is worth knowing that you have six years in England, Wales and Northern Ireland, and five years in Scotland, in which to make the claim for late payment interest and compensation. Even if you have stopped supplying the customer.

Frequently Asked Questions

What type of firms can I apply the late payment legislation to?

The legal status of the business you are seeking to claim interest from is irrelevant. Therefore it can be a sole proprietor, partnership or limited liability company. However you cannot apply the late payment legislation to personal debt.

What if a customer has more than one overdue invoice? How do I claim these multiple debts?

If each invoice relates to a separate order for goods or services, then you are entitled to claim interest and compensation on each overdue invoice. The amount of compensation that the legislation states that you can claim for varies with the size of the claim. Of course you have the option to add together several claims for compensation and late payment interest in one claim. If you do this, you should calculate each individually and set them out in writing so it is clear which claim relates to which order.

Do I invoice for the interest and compensation?

You should not issue an invoice for the interest and compensation – you put your claim in writing.  Interest accumulates on a daily basis, so the longer the debt is unpaid, the more interest racks up. If your claim for interest remains unpaid, then you need to contact the customer again to chase, explaining that interest is continuing to accrue.

Can I claim compensation for debt recovery costs and VAT, as well as late payment interest?

The right to compensation for debt recovery costs was introduced for contracts dated on or after 7th August 2002. This can be claimed alongside the statutory late payment interest. Businesses are entitled to claim compensation when a debt remains unpaid after the date specified on the contract, or in the absence of a contract, 30 days after the delivery of the goods or service. There are circumstances where the 30 day rule may not apply. Read this section about payment arrangements. The claim for compensation is made to the debtor, together with the claim for interest. VAT is not added to the compensation charge or on the interest. Please also note that businesses with their own contract terms for late payment interest forfeit their right to use the late payment legislation.

In March 2013, the revised legislation entitles creditors to claim further recovery costs on top of the interest and compensation. For example, the cost of using a solicitor or debt recovery business can be added to the claim.

How do I deal with collecting late payment interest when the invoice has been partially settled?

In legal terms, interest continues at the ‘daily rate’ on the whole of the outstanding debt. Charging interest is designed to be a spur to payment. You should use the interest charge to encourage the debtor to pay on time i.e. explain to the debtor that they can avoid these extra costs if he/she pays according to terms.

Do I have to notify a customer of my intention to charge late payment interest and debt recovery costs?

It is not necessary for a customer to have been notified in advance of the intention to charge late payment interest and compensation and you do not have to refer to it in your contract.

Should I sue for late payment interest?

It is important to note that you do not need to go to court to claim late payment interest and debt recovery costs. You have a statutory right to both and these should be paid with the principal sum by the debtor.

It may not be necessary at this stage to threaten your debtor with Court action, as the reality of an interest charge and compensation bill may be enough to prompt your debtor into responding to your calls and hopefully paying your invoice. It is advisable that you think carefully before deciding to pursue the debt through the court and that you avoid issuing threats that you do not intend to act upon.

For GB Businesses of all types and sizes, how can we help?. Our UK based service team will assist you with any query or problem related to credit control and credit management. Please visit, call 0800 634 0187 or email

I don’t have a contract with my customer. Can I still claim late payment interest and compensation?

It is possible to claim interest on overdue invoices even if you haven’t agreed a formal contract. However, the key thing about credit terms is to agree them up front before trading with any other business, to help you get paid more quickly and avoid misunderstandings. Credit periods should be made clear to the customer, ideally well before invoicing stage.

How do I credit check a company I wish to do business with?

There are many ways you can do this including obtaining bank references, trade references and obtaining company accounts. In addition there are companies such as The Credit Protection Association Plc that can provide you with status reports on companies as part of their service. Please visit, call 0800 634 0187 or email for further details.

Status reports should contain full customer details, financial results, county court judgments, registered lending, etc. and a recommended credit rating. The Credit Protection Association Plc can deliver instant reports on-line.

A customer is refusing to pay. What should I do?

If a customer ‘refuses’ to pay you, it is important to establish why, rather than immediately seeking to sue the debtor. It could be that they are disputing the payment, in which case the onus is on you to resolve the dispute. You should write to whomever the commercial contract is with to acknowledge the outstanding payment.

If the customer ignores your letter (which you should chase up with a phone call), has not disputed your invoice and has no justifiable reason for withholding payment, then you could appoint The Credit Protection Association Plc to chase up the debt on your behalf.

What wording should I use on invoices to display my intention to charge interest if I am paid late?

You can add the following wording:

We understand and will exercise our statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to agreed credit terms.

A customer is not paying me and is saying that I am harassing him for the payment. What shall I do?

The issue of harassing a debtor is governed by Section 40 of the Administration of Justice Act 1970 which makes it an offence to harass a debtor and describes harassment as contacting the debtor in a manner or frequency which is unreasonable

What is considered unreasonable is difficult to define and it may be that a court is asked to decide this. As a general guideline, if calls are made too often or at unreasonable times of day (generally considered to be before 8am or after 9pm), that would be harassment.

If a debtor has asked a creditor not to telephone, there is a risk that continuing to do so might constitute harassment.

One of my business customers is going into liquidation. How do I collect what I’m owed?

Your first step should be to contact the liquidators. When a company goes into administration then receivers are appointed. It is their responsibility to distribute any funds to creditors, if there are any left. You should ensure your claim is lodged. Once you get in touch with them, request a Proof of Debt Form. The receiver may well be aware of the debt and you may likely receive a letter and form from the receiver in due course anyway. Unfortunately, if the debtor is insolvent you are unlikely to recover your money. If the debtor can only repay a portion of the total debts owed, then a pro-rata distribution would be made.

You may want to visit website for help.

What do I do when a customer disputes an invoice and won’t pay it?

A disputed invoice is one that the customer has queried, or refuses to pay all or part of for a given reason.

On the occasions when a customer queries one of your invoices, it is vital to ensure that you have a method in place to acknowledge, investigate and reply to that query quickly, so that delay in the payment of the outstanding invoice is avoided. Whatever the reason for the query, the onus is firmly upon your organisation to resolve the problem – fast. Otherwise the customer will feel perfectly justified in withholding payment of all or part of the relevant amount until your system gets itself sufficiently organised to respond to the point.

On the assumption that the query or complaint does not relate to the entire balance due, you should remind your customer that there is still a balance owing to your organisation which is not in any way connected with the queries raised. This letter should be personally addressed to the person raising the query and should set out your account number, an order number, and remind your customer of the balance due. The effect of this letter is therefore twofold.

It gives the customer a sense of receiving an additional prompt, efficient service and at the same time it gives little or no leeway for delay or non-payment of balances that are properly due.

As far as your internal procedures are concerned, it is important to communicate the status of unsatisfied customers to other relevant internal departments. All relevant parties should be furnished with full details of the customer, his or her account number, the relevant credit limit, the current balance due, the date the query was received and details as to its exact nature. The information should also include the deadline by which a response must be given to the customer. With that information in place, you will be in a position to reply to the customer’s query or complaint either by negotiating some form of discount or allowance on the invoice delivered, or by delivering a letter to the customer in response to their query. This letter should quote the relevant account number and the balance due and set out your company’s version of events in a way that is designed to deal conclusively with the query raised.

If I am claiming interest on a debt that spans one year and there has been four changes to the base rate in that period, what base rate do I use, is it a combination of all four or just one,. i.e. the base rate when the debt started to accrue?

For contracts dated 7th August 2002 and onwards, businesses are entitled to charge 8% above the reference rate that is in place on the day the debt becomes over due.

The reference rate is set for six month periods, so the Bank of England base rate that is in place on the 31st December will be the reference rate for the period 1st Jan – 30th June, and the BoE base rate that is in place on 30th June is the reference rate for 1st July – 31st December.

For instance as at 20th June 2010, the BoE base rate was 0.5%. This means therefore that for the period 1st January – 30th June 2010, businesses will be able to charge 8.5% late payment interest.
There is no need to adjust your interest rate if base rate moves – you use the one in place when the debt becomes overdue.

The calculation can be done via this online interest calculator and is the easiest method to calculate late payment interest.

Our customer told us that they no longer issue cheques. They insist on paying by BACS. We have not been informed of this change of policy. Is a company allowed to dictate what method they will pay by?

In our experience, BACS can prove to be an aid to being paid on time, since the payment is done by bank transfer. It could be that they are trying to improve their payment system. Our advice would be to telephone them and find out why they have made the change. Remind them of any invoices overdue and ensure that they arrange to pay them immediately via BACS. Finally, ensure that you give your customer your bank details in order that they can initiate the bank transfer.

Over a period of months, we have erroneously charged the wrong amount to a customer. Can they refuse to pay the correct amount?

If your contract clearly states the correct amounts to be charged then it is worth meeting your customer to see if you can amicably resolve the situation. If the customer refuses to make payments to adjust the error then you should seek legal advice on this.

In the event of a dispute as to whether the supplier’s or the customer’s terms of trade are relevant to a contract, who is right?

We are not legal specialists and it is important that you seek legal advice on this issue. There is a precedent known as ‘Battle of the Forms’ that states that the terms which apply to a contract are those which are agreed by the parties at the moment in time when agreement to sell and to buy is reached. It is therefore important to establish the chronology of which terms were presented last.

How do I record late payment interest and compensation in my accounting records for tax purposes?

Late payment interest and compensation are chargeable as ‘interest received’ (for the late payment interest) and ‘other income’ (for the compensation received) within the accounts.

Both the late payment interest and compensation are taxable as they are derived from extra costs which you may have incurred.

For any payments that are made, these would be recorded as interest charged within the accounts

For a free assessment of the potential financial compensation you are owed, please call us on 0330 053 9263 or email us or use our contact form.


The Late Payment of Commercial Debts Regulations 2002

The Late Payment of Commercial Debts Regulations 2013


This Guide has been prepared to provide general guidance only.

This guide does not constitute legal advice and reliance ought not to be placed on it.

No liability can be accepted by the authors or publishers for its contents.

The interpretation of the law on late payment is ultimately a matter for the courts, and users should take their own advice where appropriate.