The Late Payment regulations allow businesses to add interest and claim compensation on overdue debts. The idea was first introduced by the Government under The Late Payment of Commercial Debts (Interest) Act 1998, however statistics show that it was and still remains significantly underused.
The facts
In March 2025, Credit safe reported that 86% of businesses faced up to 30% of their monthly invoices falling overdue.
In September 2024, the Government suggested that UK SMEs lose an average of £22,000 annually to overdue invoices, along with 56 million hours of lost productivity chasing the invoices. Given current economic conditions, it is likely that these figures are improving.
What is a late payment?
Where no written contract exists, a “Late Payment” is defined by statute as any payment made more than 30 days from the later of:
- The date the invoice was received; or
- The date goods / services were delivered.
Reasons why it is not requested
It is a question of commerciality. Just like the statutory demand tool available to us if we are owed money, claiming for late payment interest or compensation can potentially harm business relationships you are trying to build and maintain.
However, with the common rule of thumb used by many financial advisors that to improve cashflow, “you can do this by collecting your book debts quickly and by paying your liabilities later”, when will the forbearance elastic band snap? Surely fostering a culture of a better payment practice would be more beneficial for our economy as a whole.
What could it be worth?
Interest and Compensation can be recovered on the following bases per statute:
Statutory Interest:
If a payment is late, the supplier has the right to statutory interest, which is 8% plus the Bank of England base rate, for the period the debt remains outstanding.
Fixed Compensation Fees:
In addition to statutory interest, a supplier can claim a fixed sum for debt recovery costs. The amount of this fee depends on the value of the outstanding debt:
£100: for debts of £10,000 or more.
£40: for debts under £1,000.
£70: for debts between £1,000 and £9,999.99.
The interest and compensation applies to each invoice, so whilst the sums appear nominal, they can quickly add up if a company issues a high volume of invoices.
What should I do?
If you are experiencing significant delays in being paid, consider the following:
- Does this relationship need to continue for the benefit of the business?
- Should interest and compensation be considered?
- Instruct solicitors and consider a letter before action.
- Is it time for a statutory demand?
Is this legislation used in an insolvency scenario?
During an insolvency process, relationships with debtors are effectively severed. For an Insolvency Practitioner to pursue late payments, there is no requirement to consider the relationship other than is it still a live company. Depending on the ledger, these recoveries can turn into quite a significant asset realisation for the estate.
Typically, an Insolvency Practitioner focuses on recovering unpaid debts, rather than seek the late payments of the ones that have been paid.
In Conclusion, this is not just a call to action for credit controllers to consider and be aware of this legislation, but it is also a reminder to your accounts payable teams to ensure they are not pushing the limits too far.
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