When and how you can add late payment interest to your unpaid invoices

A small business owner calculating the late payment interest she can charge her client.

Since the economic crash of 2008/9, the late payment of invoices by hiring businesses has become a common issue for freelancers and small businesses.

What are the consequences of late payment?

Late payments cause businesses to experience poor cashflow and can force business owners to live invoice-to-invoice as they use their time chasing debtors, rather than doing more productive tasks that will drive their business forward.

Late payments are estimated to cause 50,000 businesses in the UK to close every year, according to the Federation of Small Businesses (FSB), which in-turn means £23.4 billion is owed to small businesses.

When is a payment classed as being late?

If you agree a payment date, it is usually within 30 days for a public authority or 60 days for a business transaction. You can agree longer than 60 days, but it must be fair to both businesses.

If you do not agree a payment date, the law states that payments are late 30 days after:

  1. The customer gets the invoice.
  2. You deliver the goods or provide the service.

How you can help to ensure you are paid on time

The best way to ensure you are paid on time is to clearly explain your terms and expectations from the outset and agree them with your client. One point you need to clarify is that you charge interest on late payments.

It is important to ensure your clients are aware of this, so they are not unpleasantly surprised when they see it in writing for the first time. Set out your terms in a written document that your client must sign and date, so you have reference to call upon in the future.

What interest can you charge clients for late payments?

You can charge interest and claim debt recovery costs if another business is late paying for your goods or services.

The interest you can charge if another business is late paying for goods or services is called “statutory interest”. Statutory Interest is currently set at 8% plus the Bank of England base rate for business-to-business (B2B) transactions. If you opt to add interest to the money you are owed, you will need to send a new invoice to your client.

Note: you can’t claim interest if there is a different rate of interest within a contract. Also, you can’t use a lower interest rate if you have a contract with public authorities (1).

As an example, if your business is owed £1,000 and the Bank of England base rate is 0.5%:

  •  The annual statutory interest would be £85.00 (£1,000 x 0.85 = £85.00)
  • Divide £85 by 365 to work out the daily interest: 23p per day (£85 / 365 = £0.23)
  • After 50 days the total would be £11.50 (50 x £0.23 = £11.50)

You are also entitled to charge a business a fixed sum for the cost of recovering a late commercial payment on top of claiming interest for it. The amount you can charge depends on the size of the debt owed to you.

You can only charge a business once for each payment, as follows:

Amount of debt

What you can charge

Up to £999.99


£1,000 to £9,999.99


£10,000 or more



If you’ve been compelled to charge late payment interest on your invoices, but have still not received payment, then you could consider further action. Taking legal action of any kind can be expensive and, in many cases, it is seen as the last resort. Ask yourself if taking legal action is worthwhile and if the size of the debt justifies this course of action before you commence.

How can insurance help to reduce legal costs?

Legal action of any kind can be expensive, and if the thought of handling a Small Claims Court petition concerns you, it might be pertinent to ensure you are insured.

Legal Expenses Insurance, provides you with the backing of a legal team, and the policy provides cover for up to £100,000* in ‘any one claim’ to cover the costs incurred by a legal proceeding, such as recovery of business debts.

* Please note cover is subject to a total limit of £1m for all claims made in a policy period. For full details, please refer to the Summary of Cover and Policy Wording.

Where can you access further guidance and legal resources?

The Markel Business Hub is an online resource containing a range of documents and articles to help you manage the various laws you can encounter when running a business.

The Markel Business Hub provides help for over 50,000 users and contains:

  •  800+ legal resources including contract templates, policies, forms, and letter templates created by Markel’s expert solicitors
  • Legal updates, templates, guidance documents, and checklists
  • 460+ straightforward guides
  • 350+ links to key resources (2)
  • Up-to-date information covering legislation and case-law
  • Live Chat assistance available Monday to Friday 09:00 – 17:00
  • Legal helpline.

There are two ways you can access the Markel Law Hub.

1. Simply buy Legal Expenses Insurance from us via our online system. It only takes a few minutes, with prices starting from £56.00 per annum, which we think is a small price to pay for cover.

2. If you don’t require Legal Expenses Insurance but you feel you could benefit from access to the Law Hub, you can buy an annual subscription for £189.00 +VAT. Click to the Markel Business Hub for details.

If you are interested in our Legal Expenses Insurance policy, click the ‘Get A Quote Now’ button.  

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1. www.gov.uk/late-commercial-payments-interest-debt-recovery/

2. https://www.markellaw.co.uk/lawhub

Government tackles late payments to small firms to protect jobs - GOV.UK (www.gov.uk)


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