Charging interest on overdue invoices: UK, US, AU, NZ

Summary

UK businesses can charge statutory interest of 8% over the Bank of England base rate on overdue B2B invoices under the Late Payment of Commercial Debts (Interest) Act 1998, plus a fixed £40, £70 or £100 sum by debt size, with no contract clause needed. In the US, Australia and New Zealand the right is contractual only.

• The rate: 8% plus the Bank of England base rate, simple interest, calculated daily from the day after the due date; the base rate is fixed on 30 June or 31 December for interest that starts to run in the following six months, so debts where interest starts in 2026 run at 11.75%.
• The fixed sum: £40 for debts under £1,000, £70 for £1,000 to £9,999.99, £100 for £10,000 or more, per overdue invoice, outside the scope of VAT, claimable for six years including on invoices already paid late.
• Xero and QuickBooks: Neither ledger applies statutory interest automatically. Paidnice raises the interest and the fixed sum on the ledger itself, so they appear on the customer's statement and in their aged payables.

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What can a goods supplier charge on an overdue invoice in the UK?

A UK supplier of goods on B2B credit terms can charge statutory interest at 8 percentage points over the Bank of England base rate, plus a fixed sum of £40, £70 or £100 on each overdue invoice by its size, whether or not the contract says so. The rate does not move once it has been set for a debt, which is why one ledger can carry two of them.

The basics, the fixed-sum bands and a calculator are in late payment fees in the UK, and the ceiling is answered in how much can I charge for late fees. The Small Business Commissioner publishes a free interest calculator for a single invoice.

Four boundaries first.

• It is a business right, not a consumer one. The Act covers B2B and public sector contracts. A sale to a private individual is outside it entirely.
• Where no payment date was agreed, the debt falls due 30 days after the later of your performance and the customer's notice of the amount owed, and interest runs from the day after that.
• A contract term can displace the statutory right, but only if it provides a substantial remedy. A token rate imposed through a large buyer's standard terms does not, and that escape is being closed.

Three points then matter more when you sell goods than when you sell time.

• The interest is simple, not compound. Compounding needs an express contract term that must stand on its own merits.
• Section 4 caps an agreed date at 60 days, longer only where it is not grossly unfair. "30 days end of month following", the standard merchant term, reaches exactly 60 days on an invoice dated the 1st.
• The fixed sum is a floor, not a cap. Where your recovery costs exceed it, section 5A(2A) gives you the difference. The sums have not been uprated since 2002, so that limb is where the money sits.

Can one aged debtors report carry two statutory interest rates?

Yes. A single aged debtors report can carry two statutory interest rates at the same time, because each invoice keeps the rate set at the reference date before its interest started to run, and that rate is then held for the life of the debt.

Almost nothing on page one says so. The government's own guidance states only that statutory interest is "8% plus the Bank of England base rate", with no reference date and no fixing rule.

The rule sits in article 4 of the Late Payment of Commercial Debts (Rate of Interest) (No.3) Order 2002. It sets the rate from the official dealing rate on "the 30th June (in respect of interest which starts to run between 1st July and 31st December) or the 31st December (in respect of interest which starts to run between 1st January and 30th June)".

Here is what that does to a ledger. Two invoices to one builders merchant, both £12,000, both 100 days past due today.

• INV-A fell overdue on 14 November 2025. Interest started in H2 2025, so the reference date is 30 June 2025, when Bank Rate was 4.25%. The rate is 12.25%.
• INV-B fell overdue on 20 February 2026. Interest started in H1 2026, so the reference date is 31 December 2025, when Bank Rate was 3.75%. The rate is 11.75%.

The arithmetic:

• INV-A: £12,000 × 12.25% × 100 ÷ 365 = £402.74
• INV-B: £12,000 × 11.75% × 100 ÷ 365 = £386.30
• Interest across both: £789.04, plus £100 of fixed compensation on each

Recalculate the whole report at today's 11.75% and you get £772.60, understating the claim by £16.44 on one pair. Across several hundred the error is systematic, always in whichever direction the Bank last moved.

Both rates come from HMRC's statutorily linked rates, where late payment interest is Bank Rate plus 4. Bank Rate has stood at 3.75% since 18 December 2025, and HMRC's linked rate followed on 9 January 2026 at 7.75%. Before that it was 8.25% from 28 May 2025, putting Bank Rate at 4.25% on the 30 June 2025 reference date.

Check the current figure on the Bank of England page for the reference date you need, not for today.

The two invoices carry £989.04 between them. UK wholesale ran a 13.60% gross margin proxy in 2024 on the ONS Annual Business Survey, though fuels wholesaling drags that down and a typical non-fuel wholesaler runs nearer 17.74%. Even at the higher figure, £989.04 ÷ 17.74% is the gross profit on £5,575 of replacement sales.

What those days cost across the whole ledger is the subject of debtor days for wholesalers.

What does nobody tell you about the £40, £70 and £100 fixed sum?

The fixed compensation sum under section 5A stacks per overdue invoice rather than per customer, sits outside the scope of VAT, and can be claimed for six years, including on invoices that were paid late and are now settled.

It stacks per invoice, not per debtor. Entitlement arises each time statutory interest starts to run, and it runs on each qualifying debt, so weekly delivery means one fixed sum per unpaid invoice.

Take twelve unpaid deliveries of £4,200, a £50,400 balance. Each sits in the £1,000 to £9,999.99 band, so each carries £70. That is 12 × £70 = £840, against the £100 you would claim if the balance arrived as one debt.

It carries no VAT. HMRC's guidance is that "no tax is due, however, on any interest awarded or agreed because of the late payment", at VATSC06810. Both are outside the scope of VAT, so raise the line with no VAT rather than at a zero rate.

It can be claimed after the fact. The right accrued when the invoice went overdue, and a claim on a simple contract runs for six years from that point. Paying the principal late does not extinguish what accrued along the way.

So a customer who has paid three weeks late for four years is a real claim. Raising it is a commercial decision, not a legal one.

When does the 60-day payment terms ceiling arrive?

The 60-day ceiling on UK B2B payment terms commences no earlier than 2027. On 24 July 2026 the government confirmed a 60-day statutory maximum on B2B payment terms, mandatory statutory interest, and commencement no earlier than 2027.

The confirmations are in the government response, and the legislation carrying them is in the Commercial Payments Bill explained. Four points change how to draft terms now.

• A 60-day statutory maximum on B2B terms, with narrow exemptions for large-to-large contracts, contracts where the purchaser is the smaller party, and import and export.
• Statutory interest becomes mandatory, with the ability to agree an alternative remedy removed. The "interest at 2% over base" clause in a large buyer's standard terms stops working.
• Commencement no earlier than 2027, phased, and prospective rather than retrospective.
• The step down to 45 days was expressly rejected. The government does not intend to take it forward now, though it may revisit it.

So 60-day terms are legal today under section 4(2E), and longer only where the date is not grossly unfair. What changes is that 60 becomes a hard edge, so the accounts to look at now are the ones at 75 or 90. Setting terms account by account is covered in credit control for wholesalers.

Can you charge interest on overdue invoices in the US, Australia and New Zealand?

Yes, but only by contract. Of the United Kingdom, United States, Australia and New Zealand, only the UK gives a supplier an automatic right to interest on an overdue trade debt. In the other three the late fee exists only because signed terms say so.

United States

There is no federal right to interest on a private trade debt. The Prompt Payment Act binds federal agencies only, and state prompt-pay statutes are almost all construction-specific. A distributor on open account gets nothing from either.

The service charge must be agreed in writing before shipment, and be reasonable. The norm cited across US practitioner sources is 1% to 1.5% a month. At 1.5% that is 18.0% a year simple, or 19.56% compounded monthly, so terms saying "18% APR" while compounding describe something the invoice does not do.

State usury caps are the ceiling and they are not uniform. New York is the one position fully sourced here: a corporation cannot plead usury under GOL section 5-521, leaving criminal usury at 25% a year under Penal Law section 190.40. Figures for other states did not survive checking, so take local advice.

Australia

Australia gives a supplier no statutory right to interest on an overdue commercial debt, and the Supplier Pay On-Time or Pay Interest Policy reaches Commonwealth contracts only.

A contractual fee has to survive the penalties doctrine as restated in Paciocco v ANZ in 2016. A clause is a penalty where the sum is out of all proportion to your legitimate interests, judged on the facts known when you contracted. A fee sized to the real cost of carrying overdue debt is defensible. One retrofitted after a default is not.

The bigger exposure sits elsewhere in the same document. Since 9 November 2023 unfair terms in standard-form small business contracts are illegal and civilly penalizable rather than merely voidable, and a credit application is standard-form. Suppliers to the majors also sit under the Food and Grocery Code, mandatory since 1 April 2025, which governs conduct but grants no interest.

New Zealand

New Zealand is the only one of the four markets with neither statutory interest nor a payment-times register. The Business Payment Practices Act 2023 was repealed on 8 March 2024, before its disclosure duties took effect.

Interest arrives only once you sue, under the Interest on Money Claims Act 2016, at a term-deposit-linked rate calculated daily. The pre-litigation pressure a New Zealand wholesaler can apply is entirely what its own terms create.

Standard-form B2B contracts under NZ$250,000 a year fall under the unfair contract terms regime, covering most trade accounts. Suppliers to Foodstuffs and Woolworths NZ also sit under the Grocery Supply Code, in force in its 2025 form from 1 May 2026. It requires a reasonable payment time and written consent before deductions, but again no interest.

What can you not do once a customer is insolvent?

Once a UK customer enters a relevant insolvency procedure you cannot make payment of pre-appointment arrears a condition of continued supply, and you cannot terminate because of the insolvency itself.

The provision is section 233B of the Insolvency Act 1986, inserted by section 14 of the Corporate Insolvency and Governance Act 2020. Subsection (3) kills the insolvency-triggered termination clause. Subsection (7) is the one that catches wholesalers.

It says the supplier "shall not make it a condition of any supply of goods and services" after the insolvency starts "that any outstanding charges in respect of a supply made to the company before that time are paid". Stopping the lorries until the old account is cleared is now unlawful.

Termination remains possible with the office-holder's consent or the court's permission on hardship grounds, and neither arrives inside the hours a delivery decision takes.

Interest and compensation on the pre-appointment invoices still accrue, but they join the same unsecured claim as the principal. That is the argument for the controls that run earlier: the order gate, and retention of title and deductions.

Does Xero charge late payment interest automatically?

No. Xero has no late fee or interest setting, so statutory interest is either calculated and added by hand, as an interest line on the overdue invoice or a separate interest invoice to the same contact, or raised by an app connected to the ledger. The Xero Product Ideas request for interest on late invoices dates from 29 March 2012, holds 1,114 votes, and Xero's last response on 7 July 2025 gave no committed plans.

Xero flags the invoice as overdue and does nothing further. By hand, for a wholesaler with dozens of deliveries a month, the separate interest invoice is the only workable route.

1. Once a month, list every overdue invoice for the customer with its locked rate, the days overdue and the fixed sum.
2. Raise one interest invoice to that contact, one line per overdue invoice, with the interest lines on a no-VAT tax rate.
3. Reference each original invoice number on its line so the customer can match it.
4. Recompute next month, because interest keeps accruing on anything still unpaid.

The two manual methods are in add late payment fees in Xero. QuickBooks Online has no statutory interest feature either.

How does Paidnice apply statutory interest without the admin?

Paidnice connects to the Xero or QuickBooks Online organisation, runs one late fee policy per customer group, and raises the interest and the fixed sum on the ledger as a Draft or Approved invoice, so the charge enters the customer's payables system rather than an email. Doing this by hand across hundreds of invoices, each on its own locked rate, is why most wholesalers never charge interest at all.

Two charge types matter to a goods supplier, and both run on the same customer group: a per-invoice late fee, the natural home for the £40, £70 and £100 fixed sums at one per unpaid delivery, and statement interest, charged on the customer's whole overdue balance and prorated by the day. To set the UK statutory rate:

1. Create a statement interest policy with the Bank of England base rate toggle on and 8 as your percentage. Choose whether to lock the base rate for each six-month period, as the Late Payment Order sets it, or follow the base rate dynamically as it changes. The locked mode is the statutory calculation.
2. Turn "include previous interest charges" off. It is on by default, so a new policy compounds unless you switch it, and the Act gives simple interest.
3. Set the tax rate to "not applicable", which applies the outside-the-scope VAT treatment without a manual edit.
4. Add a fixed amount line for the compensation sum, with its own description and income account.
5. Assign the policy to the customer group and choose Approved or Draft for the charge invoice.

Statement interest recalculates at send, so the figure a customer opens is accurate that morning, not left over from the last policy run. Customers cut their average wait for payment in half, within 30 days. Pricing is by invoice volume, from £49 / US$69 a month for 150 invoices, Pro from £74 / US$99, no per-seat fees.

For a one-off figure, use the UK statutory interest calculator. For the category, see the best credit control software for wholesalers.

Common questions