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Claiming Late Payment Interest and Compensation


Suppliers often find themselves in difficulties through late payments from their customers. If you’ve had this problem, you’ll be relieved to learn that you have the right to charge late payment interest. Find out more about this right in our article.


The Late Payment of Commercial Debts (Interest) Act 1998 (and the Regulations issued in 2002 and 2013) are intended to compensate creditors for the late payment of debts and to deter late payment of invoices by customers.


A claim can be made for Late Payment Interest, Compensation and Costs if:


  • the business has supplied goods and services

  • the buyer bought them for business purposes

  • the contract is not a consumer credit agreement

  • the contract does not contain a provision for interest on overdue invoices (or any other substantial remedy for non-payment)


Interest can be claimed on invoices that were not paid within the credit period but have since been paid. It can be claimed for the period starting with the date the invoice should have been paid and ending with the date it was actually paid.


The supplier can claim 8% over the Bank of England Base Rate at the previous 31st December or 30th June.


A claim for interest can be made up to six years after the date of the invoice. This time limit also applies to claims for compensation.


The supplier can claim compensation for every invoice that was not paid within the credit period. Compensation can also be claimed, even if the invoice has now been paid.


The amount of compensation that can be claimed depends on the size of the invoice and increases as follows:


Up to £999.99, £40 per invoice

£1000 – £9,999.99, £70 per invoice

Over £10,000.00, £100 per invoice


As well as interest and compensation, suppliers can also claim reasonable costs of recovering the debt, should they amount to more than the compensation. This only applies to orders placed after 16th March 2013. This may include the cost of credit control procedures as well as those incurred if the supplier has to make use of debt collection agencies or lawyers.


If the claim goes to the small claims track, the court may very well view legal costs, provided that they are reasonable, as the equivalent of limited fixed costs allowed by the system.


If a supplier has a clause in its contract allowing it to recover such costs, it will stand a better chance of these being awarded in court.


In order to avoid misunderstanding, suppliers should inform their customers that in the event of overdue invoices, late payment interest, compensation and costs will be claimed. This can be done via warning text on the invoice itself or through e-mail/written communication. While this is being done, the supplier should also make changes to its terms to enable it to claim late payment interest, compensation and costs.


If those terms already contain a clause that provides for interest on overdue invoices, they should be changed to remove that clause because it would prevent a subsequent claim for payment interest, compensation or costs. Again, customers should be advised of this change before any claims are made.


Contracts that were agreed before the change in Terms and Conditions will still be governed by the version that applied at that time.


When a customer’s terms of business are incorporated into the contract and allow for a very low rate of interest on overdue amounts, a court may decide that the rate is not high enough and the Late Payment legislation still applies.


The compensation can be claimed as soon as the payment is overdue and the interest can be claimed in due course. Debt recovery costs, provided that they are reasonable, can be claimed as and when they are incurred.


This is done by writing to the customer and advising them of the amount due. Another invoice is not required.


In the interests of clarity, the supplier making the claim should advise the customer:


  • how the sum due is broken down by interest, compensation and costs

  • the invoice number that relates to the principal debt

  • the means by which payment should be made, including payee, date due, address and method


Previous warning letters are not needed when a claim for interest, compensation or costs is made.


There may be situations where the amount of an invoice is not agreed. When the customer admits that an amount smaller than that claimed by the supplier is payable, the court will expect them to pay the smaller amount immediately, without waiting for any issues to be resolved.


A supplier is entitled to claim late payment interest, compensation and costs on amounts the customer admitted were due but did not pay until all queries were resolved.


If an invoice is based on a calculation which is incorrect, the customer is expected to access the correct information, calculate the correct amount and make the payment. The supplier is entitled to claim late payment interest, compensation and costs if this does not happen.


A claim for late payment interest, compensation and costs will not initially be allowed is if there is a genuine uncertainty about the amount of the invoice, or a real dispute as to whether the money is due. Only once the matter has been clarified will the claim be allowed to proceed.


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