Late Payment in the UK: Your Rights and Options
UK businesses are owed an average of £22,000 in overdue invoices at any time, according to the Federation of Small Businesses, and approximately 50,000 businesses fail each year due to cash flow problems caused by late payment. Under the Late Payment of Commercial Debts (Interest) Act 1998, you can charge statutory interest of 8% above Bank of England base rate on any late B2B payment. But charging interest doesn't solve the immediate cash gap. Here's what does.
Under the Late Payment of Commercial Debts Act 1998, UK businesses can charge 8% above base rate on overdue B2B invoices. But the fastest practical solution is invoice finance, which releases 85-90% of invoice value within 24 hours. More detail + scope
This page covers
UK late payment rights under the 1998 Act and practical solutions for businesses affected
Not covered here
Late payment statistics (see /stats/late-payment-crisis/), how invoice finance works (see /guides/how-invoice-finance-works/)
Your Legal Rights
Late Payment of Commercial Debts Act 1998
- Statutory interest: 11.75% a year (8% plus the 3.75% Bank of England base rate) on the outstanding amount, calculated daily from the day after the payment due date
- Compensation: Fixed sum per invoice: £40 (debts under £1,000), £70 (£1,000-£9,999), £100 (£10,000+)
- Applies to: All B2B transactions unless you've contractually agreed different terms
- Unfair terms: Contract terms that are "grossly unfair" in extending payment beyond 60 days can be challenged
Late payment does more than inconvenience owners. It can force them to use personal savings, miss their own supplier payments and delay hiring, with knock-on effects through the supply chain.
Why Most Businesses Don't Use It
In theory, you can charge interest on every late invoice. In practice, most businesses don't because they fear damaging the customer relationship. If Tesco pays you 15 days late on a £50,000 invoice, you could charge £1,027 in interest and a £100 compensation. But you probably won't, because you want the next order.
This is precisely why invoice finance exists. Instead of chasing payment or charging interest, you hand the invoice to a factoring provider and get 85-90% within 24 hours. The factoring company deals with the timing. You keep the customer relationship intact.
Practical Solutions, Ranked
| Solution | Speed | Preserves Relationship? | Cost |
|---|---|---|---|
| Invoice finance | 24 hours | Yes | 0.5-3% |
| Early payment discount | If accepted | Yes | 2-5% discount |
| Polite chase | Days-weeks | Yes | Free (your time) |
| Statutory interest | Adds to debt | Risk | Free |
| Debt collection agency | Weeks-months | No | 10-25% commission |
| County Court claim | Months | Destroyed | Court fees + solicitor |
Prevention Is Better Than Cure
- Credit check new customers before offering credit terms. Services like Creditsafe and Experian Business cost £50-200/month and save thousands in bad debt. Data from BACS/Pay.UK shows late payments cost UK businesses an estimated £684 million per year in charges and interest alone.
- Invoice immediately on delivery/completion. Every day you delay invoicing adds a day to your cash gap.
- Set up standing orders or direct debits with repeat customers where possible.
- Use invoice finance as a structural solution - don't wait until you're in crisis. Set it up when things are good and it's there when you need it.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam is the founder and managing director of Muswell Rose and a founder of Best Business Loans Ltd, the company behind Market Invoice. He spent over three years as managing director of Penny, a UK invoice finance business, and his career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library.
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