Late payment in the UK is governed by one Act, one rate-setting order and a set of court rules. When is a payment actually late, what can you claim once it is, and what does each recovery step cost you? This guide takes those three in that order, and links you to the detail where one deserves a page of its own.
When a payment is late
The starting point is the payment date you agreed. Where you and your customer agreed one, that's the "relevant day" under section 4 of the Late Payment of Commercial Debts (Interest) Act 1998.
Where you didn't agree a date, the law supplies one. GOV.UK states it as payment being late 30 days after the customer gets your invoice, or 30 days after you deliver the goods or provide the service, whichever is later. The Act puts the same rule more precisely: the relevant 30-day period begins with the later of the day you performed your obligation and the day the customer had notice of the amount owed.
That distinction matters more than it looks. Your clock doesn't run from the invoice date. It runs from performance, or from notice of the amount. If you invoice as soon as the work is done those two dates are close together, but they won't always be.
Two limits apply on top of a date you've agreed:
| Customer | Limit on the agreed date |
|---|---|
| A public authority | The relevant day cannot fall later than 30 days |
| Anyone else | An agreed date beyond 60 days is pulled back to 60, unless it is not grossly unfair to the supplier |
The second row is the one usually reported as a hard 60-day cap, but it isn't one. Subsection (2F) allows a longer agreed term to stand where it is not grossly unfair, judged on the circumstances at the time it was agreed.
What you can claim
Three separate entitlements attach to a late business debt, and you can claim all three:
You don't need to mention any of the three in your terms, because the Act implies them into the contract. And you don't have to have demanded interest before the fixed sum applies.
GOV.UK sets one limit on the fixed sum: "You can only charge the business once for each payment." So if you're adding a fixed sum to every reminder you send, the Act doesn't support that.
The rate, and the half-year that fixes it
Statutory interest is 8% over the Bank of England base rate. The part most articles get wrong is which base rate you use.
The rate is set by the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002, and article 4 fixes it by reference to two dates a year: the rate in force on 30 June applies to interest that starts to run between 1 July and 31 December, and the rate in force on 31 December applies to interest starting between 1 January and 30 June.
So the statutory rate doesn't move when the base rate moves. It changes twice a year. With the base rate at 3.75% on 30 June 2026, any debt of yours that started running interest in the second half of 2026 carries 11.75% for the whole of that half-year.
What your contract can and cannot do
Your contract can displace statutory interest, but only by putting something real in its place. Section 8 makes a term void so far as it purports to exclude the right, "unless there is a substantial contractual remedy for late payment of the debt", and where the parties have agreed a substantial remedy, statutory interest does not apply.
Section 9 defines substantial, and the test is set up to uphold the agreed term: a remedy counts as substantial unless it is both insufficient to compensate or deter late payment, and it would be unfair or unreasonable to let it displace the statutory right. Both limbs have to fail.
The practical consequence runs against most suppliers' instincts. If you specify a modest interest rate in your own terms because it looks reasonable, you've closed off the statutory rate. GOV.UK is blunt about it: "You cannot claim statutory interest if there's a different rate of interest in a contract."
The recovery steps and what they cost
| Step | Cost |
|---|---|
| Reminders, a call, a formal notice | Time only |
| Letter before action | Time and postage |
| Court claim up to £10,000 | £35 to £455 court fee |
| Court claim above £10,000 | 5% of the claim |
| Winding-up petition against a company | £352 court fee plus a £2,600 deposit |
| Bankruptcy petition against an individual | £352 court costs plus a £1,500 deposit |
Two rules shape the middle of that list.
Your pre-action step differs by debtor type. Where your debtor is an individual or a sole trader, the Pre-Action Protocol for Debt Claims applies and gives them 30 days to reply to a prescribed Letter of Claim. Where your debtor is a limited company, the Practice Direction on Pre-Action Conduct applies instead, with a reasonable time to respond, and it puts that at 14 days in a straightforward case.
And the costs rule decides whether your claim is worth bringing. A claim of not more than £10,000 is normally on the small claims track under CPR 26.9(4), where CPR 27.14 allows the court to award fixed issue costs, court fees, limited travel and witness expenses and capped expert fees, but not ordinary legal representation costs. The track assumes you'll run the claim yourself.
Once you've got judgment, the debt carries interest at 8% a year under the 1993 Judgment Debts Order, and enforcement is a separate step you have to take.
Writing a debt off
Where a debt isn't going to be paid, your write-off has two recoverable parts.
VAT bad debt relief lets you reclaim VAT you've already paid to HMRC, once the debt is six months overdue measured from the later of the due date and the date of supply, and once you've written it off in your VAT accounts and moved it to a separate bad debt account. You claim it in box 4, within four years and six months.
The mirror obligation is worth knowing while your debt is still live. A VAT-registered customer who hasn't paid within six months of the relevant date is required to repay the input tax they claimed, and HMRC doesn't require you to tell them.
For tax, a bad debt, or a doubtful debt to the extent estimated to be bad, is generally deductible in the year it becomes bad or doubtful, while a general reserve calculated as a percentage of total debts is not.
What is changing
Nothing yet. The Commercial Payments Bill [HL] was introduced on 19 May 2026 and is at Report stage in the Lords, with no Commons stages and no Royal Assent. Commencement will be set by regulations after that.
The government response, "Time to pay up", confirms an intention to impose maximum payment terms of 60 days "with strictly limited exemptions", "starting with 60 days, no earlier than 2027", and to remove the ability to agree an alternative remedy to statutory interest. A reduction to 45 days was consulted on and is explicitly not being taken forward now. Wider powers for the Small Business Commissioner, including adjudication and fines, are in the same Bill.
Preventing late payment
The legal framework describes what happens after your invoice goes late. The differences you can measure come earlier than that.
Payment method changes on-time rates by about fifteen percent from top to bottom: 72.7% of Apple Pay and 70.3% of Google Pay payments arrive on or before the due date, against 65.1% for card, 62.0% for open banking and 57.9% for bank transfer (Adfin platform data, customer-initiated payments over 26 months).
The arrangement matters more than the method. Invoices set to collect automatically are paid 98.0% of the time with 0.9% going overdue, against 90.8% paid and 5.3% overdue when collected on demand (Adfin platform data, requests created in the seven months to the end of January 2026). The two groups aren't identical, because the automatic group usually has a direct debit mandate behind it.
Invoice size moves it less than either of those. On-time payment does slip as invoices get larger, but the gap is narrower than the one between payment methods, and most of it reflects which businesses issue large invoices instead of the size itself. We've set that out separately, in the piece on why your biggest invoices tend to be the ones still collected manually.
For context on the scale of the problem, government research puts the cost to the economy at £11bn a year and the time spent chasing at an average of 86 hours a year for each business affected.
Common questions
Whatever you agreed. Where nothing was agreed, payment is late 30 days after delivery or after the customer has notice of the amount, whichever is later. For a public authority the relevant day cannot fall later than 30 days.
8% over the Bank of England base rate, fixed for the half-year by reference to the previous 30 June or 31 December. For debts running from 1 July to 31 December 2026 that is 11.75% a year, plus a fixed sum of £40, £70 or £100.
No. Between businesses the entitlement is implied by the Act. Specifying your own rate replaces the statutory one, which is often worse for the supplier.
£35 to £455 in issue fees up to £10,000, and 5% of the claim above that. Legal costs are generally not recoverable on the small claims track.
For VAT purposes, six months after the later of the due date and the supply date, provided the debt is written off in your VAT accounts. The claim deadline is four years and six months.
Measures are in the Commercial Payments Bill, which has not passed. A 60-day cap on payment terms is intended to start no earlier than 2027, and a 45-day cap is not being taken forward now.
Sources
This article explains how the late payment rules work and is not legal advice. The statutory interest rate is fixed for each half-year by reference to the Bank of England base rate on 30 June or 31 December, so check which half-year your debt falls in before you calculate. Last updated August 2026.
