Statutory Remedies for Late Payment of Commercial Debts

2 April, 2014
This article has been reviewed and is up to date as of 23 August, 2017

Late payment of invoices by customers can cause significant difficulties for businesses, with small or medium enterprises most likely to be worst affected.  Effective credit control can be the difference between success and failure.  To maintain cashflow, businesses should consider whether they have in place sufficient contractual provisions to deter debtors from paying late and if not, they should be aware of their statutory rights in the event that payment is made late.

This article sets out the statutory rights that suppliers have under the Late Payment of Commercial Debts (Interest) Act 1998 (“the Act”) and includes the recent changes made to the Act by the Late Payment of Commercial Debts Regulations 2013 (“The Regulations”) ”), and the Late Payment of Commercial Debts (Amendment) Regulations 2015.

What contracts does the Act apply to?

Under the Act, a supplier can claim statutory interest and compensation from a customer which pays late if:

• goods or services have been supplied by it in the course of a business. The definition of a “business” includes a profession and the activities of any government department or local or public authority.  Individuals acting as sole traders, partnerships and charities are also covered;

• the customer must also have been acting in the course of a business and not as a consumer;

• the contract is not a consumer credit agreement or a contract of security (such as a mortgage or charge) as the Act does not apply to these; and

• the contract does not itself contain a ‘substantial contractual remedy’ for late payment.  The court has interpreted what a substantial contractual remedy is in various cases.

UK Law

The Act applies to all parts of the UK.  The Act therefore applies to domestic contracts and international contracts governed by English law.  However, if a contract has no significant connection with the UK, and English law only applies because of an express choice (without which some other law would govern the contract) then the Act does not apply.

When is payment late?

For contracts entered into before 16 March 2013 where no time for payment is stated in the contract, the Act provides for a statutory 30 day interest free credit period after which statutory interest is payable.  The credit period runs from the latest of either the date of delivery of the goods or services, or the invoice date.

For contracts entered into on or after 16 March 2013 (when the Regulations came into force) where no time for payment is stated in the contract, the Act provides for a statutory 30 day interest free credit period which starts from the latest of either:

• the date of delivery of the goods or services or the last day of a period of hire;
• the invoice date; or
• the date of verification or acceptance of the goods where provided for by statute or contract.

For business contracts the parties are now able to agree a due date for payment of up to 60 days from the latest of the events listed above.  Statutory interest will run from the earlier of either the agreed due date or the expiry of the 60 day limit. 

Any extension of the due date for payment beyond 60 days will only be valid if it is not “grossly unfair” to the supplier. 

For contracts entered into on or after 16 March 2013 where local authorities are purchasing goods or services and no time for payment is stated in the contract, statutory interest will start to run 30 days from the latest of:-

• the date of delivery of the goods or services;
• the invoice date; or
• the date of verification or acceptance of the goods where provided for by statute or contract.

The parties may however agree a due date for payment of up to 30 days from the latest of the events listed above.  Interest will start to run from the earlier of the agreed due date or the expiry of the 30 day limit.

Where there is a contractual obligation to make an advance payment, statutory interest on the advance payment debt starts to run the day after the delivery of goods or services or, if the advance payment is for part performance, the day after part performance.

How much interest can be claimed under the Act?

Statutory interest can be claimed:

• at a rate of 8% per annum plus the base rate.  The applicable base rate is the rate set for the six month period within which the debt became due (i.e. as at 31 December for the period 1 January to 30 June, or as at 30 June for the period 1 July to 31 December).  The current base rate is 0.5% meaning that statutory interest can be claimed at 8.5% (8% above the base rate of 0.5%);

• from the day after the credit period expired until the date of actual payment;

• on debts that were paid late but have since been paid.

Part payment reduces the accrued interest first, unless payment is accepted on another basis.

The Act includes specific rules relating to advance payments.  In summary, statutory interest runs from the date of completion of the obligation (delivery of goods or completion of a service) that was paid for in advance.

How much compensation can be claimed under the Act?   


As soon as payment is overdue and statutory interest starts to run, a supplier is also entitled to statutory compensation under the Act which is a fixed sum depending on the amount of the debt.  Compensation can be claimed even if the invoice has since been paid. The amount of compensation is:-

Invoice Amount  Compensation
 Up to £999.99 £40 per invoice
 £1,000 – £9,999.99 £70 per invoice
 Over £10,000.00 £100 per invoice

For contracts entered into on or after 16 March 2013, the Act entitles a supplier to recover any reasonable debt recovery costs in excess of the fixed compensation amount stated above.  Such entitlement can be contractually excluded, but any attempt to do so will be subject to the reasonableness test under the Unfair Contact Terms Act 1977.

When and how to claim statutory interest and compensation

A supplier does not have to claim sums from its customers under the Act but has the option to do so for six years from the date that the debt became due.  It would however be advisable for businesses to bring a claim as soon as possible to avoid any argument concerning delay and whether it is fair for interest to be payable over such a long period.

There is no requirement for suppliers to inform their customers in advance that they intend to claim statutory interest or compensation.  However, so that it acts as a deterrent, it would be advisable to state this on invoices, statements of account and terms of business.

Suppliers should write to their customer as soon as a payment is overdue stating:

• which invoice is overdue;
• how much compensation and interest is owed;
• what the daily rate of interest is; and
• how payment should be made.

If payment is not made, then legal action can be taken to recover the money owed. This could be a court claim or if over £750 a statutory demand.

What happens if the invoice is disputed?

If there is a genuine dispute as to the amount of the invoice being chased then if the customer admits part of the invoice, the court will require them to pay that amount and not delay until the dispute concerning the balance has been resolved.  Statutory interest and compensation will be due on the admitted amount.

If there is a genuine dispute as to the whole of the invoice and whether it is due, then there is no entitlement to sums under the Act until the dispute has been resolved.  The court can protect the paying party by limiting interest to a certain period, or reducing the rate payable.

At a glance


Unless commercial contracts expressly provide for contractual interest to be payable when customers pay late, a healthy statutory rate of 8% above base rate can be claimed by suppliers from late paying customers, together with a fixed amount of compensation per debt owed and any reasonable costs of debt recovery which exceed the fixed amount.  This can be a helpful tool to deter customers from paying late.