What is the Late Payment Act?
The Late Payment of Commercial Debts (Interest) Act 1998 is a vital piece of legislation for UK sole traders and small businesses. It was designed to protect businesses from the cash-flow issues caused by late-paying clients. If you are a business providing goods or services to another business (B2B), this Act gives you the legal right to charge interest on overdue invoices. It ensures that you aren't left out of pocket simply because a client has failed to pay on time.
How much interest can I charge?
If your client pays after the agreed-upon date (or after 30 days if no date was specified), you are legally entitled to charge "statutory interest." This is calculated at 8% plus the Bank of England base rate.
In addition to this interest, the Act allows you to charge a fixed sum for the cost of recovering the debt. These fixed costs are tiered based on the size of the debt:
Debts up to £999.99: £40
Debts from £1,000 to £9,999.99: £70
Debts of £10,000 or more: £100
You can charge these fees for every overdue invoice you send, helping you recover both the interest and the administrative time spent chasing payments.
Do I need to send a letter?
While you have the legal right to charge this interest, it is often best to start with a professional approach. You do not necessarily need a formal legal letter for the first nudge, but you should always document your communication.
If a client continues to ignore your payment requests, the next step is to send a formal "Letter Before Action." This letter explicitly states that you are invoking your rights under the Late Payment Act and that statutory interest and recovery fees will be added to the total if the debt is not settled immediately. Using a clear, professional template—like the one available in the InvoiceUK Pro suite—can often prompt immediate payment without the need for expensive legal intervention.