Summary
Recruitment agencies in the UK can charge statutory interest of 8% a year over the Bank of England base rate plus a fixed £40 to £100 sum per overdue invoice, under the Late Payment of Commercial Debts (Interest) Act 1998. Apply the fee automatically on every account and let a named person waive it in exchange for prompt payment.
- The right: Interest applies whether or not your terms mention it; the fixed sum is £40 on debts under £1,000, £70 up to £9,999.99 and £100 at £10,000 or more, per invoice.
- The fix: Apply then waive: the system charges consistently, a credit controller or account manager grants the waiver, and the reason is recorded.
- Never on: Never apply a late fee to a genuinely disputed invoice, a self-billed account, or an invoice where the agency's own paperwork was defective.
What is a late fee (and what is it not)?
A late fee is a charge a seller adds to an invoice when the customer pays after the due date, as a flat amount, a percentage or interest. It is also called a late payment fee. See the definition of a late fee.
- A late fee is not a placement fee. A placement fee is what the agency bills the client for a hire. A late fee is added to that invoice only if the client pays after the due date.
- Statutory interest is not the whole late fee. Interest is 8% a year above the Bank of England base rate. The fixed £40, £70 or £100 per invoice sits beside it, and the Act gives both.
This matters because an agency that applies then waives needs each part named separately on the invoice. The waiver and the record can then say which part was removed.
Free: Late payment interest calculatorWork out the interest or fee on an overdue invoice.What late payment fees can a UK recruitment agency charge?
A UK recruitment agency can charge statutory interest at 8% a year over the Bank of England base rate on an overdue commercial invoice, plus fixed compensation of £40 to £100 on every invoice, under the Late Payment of Commercial Debts (Interest) Act 1998. Agencies can apply it automatically with credit control software for recruitment agencies.
You do not need a late fee clause: the Act implies the entitlement into every business-to-business contract. State it in your terms anyway.
Interest runs from the day after your due date. Where no payment terms were agreed at all, the Act supplies a default: payment becomes late 30 days after the invoice or the delivery of the service, whichever is later.
The fixed compensation, set out in section 5A, is tiered by debt size and applies per invoice, not per customer:
| Debt size | Fixed compensation per invoice |
|---|---|
| Under £1,000 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
Where your reasonable recovery costs exceed the fixed sum, the Act lets you claim the difference on top. Statutory interest and the compensation are outside the scope of VAT.
Two mechanics matter. Statutory interest is simple, not compounding: the daily amount never grows. And the reference rate is frozen in time: for a debt falling due between 1 January and 30 June you use the base rate in force on the previous 31 December, for one falling due between 1 July and 31 December the rate on 30 June.
For debts falling due between 1 July and 31 December 2026 the statutory rate is 11.75% a year: the 3.75% Bank of England base rate in force on 30 June 2026 plus 8 percentage points, fixed until the next reference date.
Clients cannot write the Act out of the contract. Under sections 7 to 9, statutory interest can only be excluded or varied where the contract provides a substantial remedy for late payment; a token contractual rate risks being struck down and the statutory rate reinstated.
An £8,500 perm invoice paid 30 days late accrues £8,500 × 11.75% × 30 ÷ 365 = £82.09 in interest, plus £70 compensation for the £1,000 to £9,999.99 tier. Total: £152.09. Deeper mechanics and templates: late payment fees in the UK.
Check current payment times for administrative and support services, the sector that includes recruitment, before you decide whether to charge.
How much is the late fee on a weekly-billed account?
On a weekly-billed recruitment account the fixed compensation applies per invoice, not per client: one temp client at £12,000 a week, eight weeks overdue, owes £800 in compensation before a penny of interest, plus about £30.90 a day of interest on the £96,000 balance.
Sonovate puts the average agency's wait at 56 days: exactly eight weekly invoices deep. Each £12,000 invoice clears the £10,000 tier: 8 × £100 = £800. Interest runs on top: £96,000 × 11.75% ÷ 365 is roughly £30.90 a day. (Funding side: recruitment agency cash flow.)
Simple interest at base rate + 8% a year: amount × rate × days ÷ 365. Interest keeps accruing daily until payment. A guide, not legal or financial advice.
The same sum manually
Take a £20,000 invoice that is 45 days overdue, with the Bank of England base rate at 3.75% on the reference date. The statutory rate is 3.75% + 8% = 11.75% a year. A full year's interest would be £20,000 × 11.75% = £2,350, so 45 days is £2,350 × 45 ÷ 365 = £289.73. The debt is £10,000 or more, so fixed compensation adds £100.
Total: £389.73, with interest still accruing at roughly £6.44 a day until payment. A standalone version lives at our statutory interest calculator.
What mistakes cost a recruitment agency when it charges late fees?
Three mistakes leave money uncollected on a weekly-billed account.
Claiming the fixed sum once per client. On the eight £12,000 invoices above, the table sets £100 each, so £800 (8 × £100). Claiming it once is £700 short.
Fix: claim the fixed sum on every overdue invoice.
Sending reminders late in the week. 35% of overdue reminders sent on a Monday or Tuesday are paid within 3 days, and 25% of those sent Wednesday to Friday. Inside the same business the gap is about 6 percentage points.
Fix: send them on Monday or Tuesday.
Source: our analysis of invoice data from over 1,000 Paidnice customers. See the best day to send.
Switching the rule off for the whole account. Interest on the £96,000 balance runs at about £30.90 a day, £927 over 30 days (£30.90 × 30).
Fix: waive the single fee, record the reason and trade it for payment this week.
Why do recruitment agencies not charge late fees?
Recruitment agencies skip late fees because the account manager who owns the client is paid on billings, and a fee feels like a threat to next month's placements, not because the law is unclear. REC's 2024/25 UK Recruitment Industry Status Report found 35% of member firms experienced bad debt in the past year, against a 29% cross-sector average.
The credit controller wants to apply interest; the account manager wants one more week of grace. The account manager wins, because they argue revenue and the controller argues principle (I unpacked that ownership problem in credit control for recruitment agencies).
The fix: take the decision off individuals and hand the credit controller leverage a polite reminder never has.
Interest and compensation apply automatically at ledger level and appear on every statement; no individual decides to charge. Waiving stays deliberate: a named person removes the fee, records the reason, and trades it for something real, payment this week, a direct debit mandate, or shorter terms. Never waive by switching the rule off for an account: that converts a concession into an entitlement.
Industry margin guides put temp net margins at 8 to 15%, so one written-off invoice wipes out the profit on roughly 7 to 12 invoices of the same size (arithmetic from the margin range, not a survey finding).
💡 Paidnice insight
Across Paidnice customers, 8 in 10 invoices are paid within the first 60 days of using Paidnice once reminders and fees run consistently, and the leverage effect shows before any fee is actually collected.
When should an agency charge, accrue, or never charge interest?
A recruitment agency should charge interest on direct SME accounts past day 30 and on repeat offenders, accrue it silently on enterprise accounts and spend the number at renewal, and never charge a self-billing account, a disputed invoice, or an invoice its own paperwork got wrong.
| Policy | Which accounts | How it runs |
|---|---|---|
| Charge | Direct SME accounts past day 30; any client past terms twice in a rolling 12 months | Applied automatically, shown on every reminder and statement |
| Accrue | Enterprise direct accounts | Accrues at ledger level, appears on the statement, spent at terms renewal |
| Never | Accounts where the client raises the invoice under a self-billing agreement; genuinely disputed invoices; invoices your own paperwork got wrong | Segmented out of the fee rules so the policy never fires by accident |
On enterprise accounts you will rarely collect the fee, but accrued statutory interest is a quantified number, and it negotiates: "You currently owe £4,200 in interest we have not charged. We are happy to keep not charging it if we move to 30-day terms."
A genuinely disputed invoice comes out of the sequence: pause, resolve, resume; no fee lands while the dispute is live (rebate clauses and disputed fees covers the triage). If your own paperwork was defective, a missing PO, a wrong rate, no signed timesheet, charging interest on your own error destroys the policy's credibility.
Charge a late fee. 68% of businesses that start charging late fees get more invoices paid on time. For similar businesses that do not charge them, it is 52%.
Is suspension a stronger lever than interest on temp accounts?
Suspension is a stronger lever than interest on a temp desk, because the worker on the client's site matters more to the client than a fee. A contractual right to suspend supply for non-payment is enforced by the client's own operational need, not your willingness to escalate.
Write the stop-work right into your terms, pair it with a credit hold so new placements stop landing on a non-paying account, and trigger it around day 30 on weekly billing: every week of tolerance adds an unpaid invoice.
How will the Commercial Payments Bill change late fees?
The UK Commercial Payments Bill, which entered Parliament on 18 May 2026, would set a maximum 60-day payment term, make interest at 8% over base mandatory rather than optional, and give the Small Business Commissioner fining powers. None of it is in force yet.
The government says late payment costs the UK economy £11 billion a year and closes 38 businesses a day. Alongside the 60-day cap and mandatory interest, the Bill's factsheet sets out a supplier right to a fixed sum when a purchaser raises a dispute late.
The Bill cleared Lords Committee stage on 21 July 2026 and reached Report Stage on 15 September 2026 and is not expected to come into force until 2027 at the earliest.
Two measures land on recruitment. Mandatory interest ends the "we do not pay late fees" conversation, and the late-dispute fixed sum targets the classic stall: the vague timesheet query that surfaces on day 55 of a 60-day term.
Can recruitment agencies charge late fees outside the UK?
Recruitment agencies in Australia, New Zealand, the US, and Canada can charge late fees only where the signed terms of business say so: none of the four has a statutory fallback like the UK Act. What the clause may say differs by country.
Australia
Australia has no statutory interest on B2B debts: the fee is purely contractual, and it must be proportionate. Since Paciocco v ANZ (2016) the test is whether a fee is out of all proportion to the legitimate interest it protects, and since 9 November 2023 an unfair term in a standard form contract is a penalised contravention, with most SME clients protected.
The practitioner pattern: peg the fee at or below your documented cost of delay, your invoice finance rate say, and have a lawyer check the clause. CreditorWatch's April 2026 Business Risk Index put Australian late payments at their highest level since January 2020.
New Zealand
New Zealand has no statutory interest and no payment-practices register: the Business Payment Practices Act 2023 was repealed in March 2024 before it took effect. Your signed terms and commercial credit data are the only instruments you have: the interest clause, suspension right, and credit check carry the entire load.
United States
In the US, late fees are contractual only, and 1.5% a month (18% a year) is the de facto standard, according to state-by-state legal guides. Caps vary by state, some 18% a year, some none, so check yours. The fee must be in the signed agreement before work starts; a fee added to an already overdue invoice is generally unenforceable.
Canada
Canada's Interest Act caps interest at 5% a year unless the contract states the annual equivalent rate. Write the clause as "1.5% a month (18% a year)", because a monthly rate on its own can be knocked down to 5%. It must also be in signed terms: an invoice-footer line is not an agreement.
How do you automate apply-and-waive?
Apply-and-waive is automated by running the late fee policy from the ledger, by customer group, so the fee lands on every qualifying invoice and a person only ever touches the waiver.
That is why we built Paidnice. It sits on top of Xero and QuickBooks Online and applies your late fees and interest automatically: flat, percentage, or compounding, with the Bank of England base rate toggle either locking the rate for each six-month period as the Act does, or following the base rate as it changes. The "Include previous interest charges" toggle is on by default, so switch it off for a strictly statutory UK policy, and add the £40, £70 or £100 compensation as a fixed line item.
Fees appear on automatic statements, accounts where the client self-bills segment out of the rules entirely, a single disputed invoice can be excluded by its reference, and waiving stays a documented human decision.
Customers see half as many late invoices in the first 30 days. Plans are priced by invoice volume from £49 a month, no per-seat fees, free sign-up with no card; here is the Xero setup. Or compare the field: best credit control software for recruitment agencies.
Common questions
Can we charge interest if our terms of business never mention it?
A UK agency can charge interest even if its terms never mention it: the 1998 Act implies statutory interest and fixed compensation into business-to-business contracts; the entitlement exists even where your terms are silent. Outside the UK the answer flips: Australia, New Zealand, and the US need the fee in your signed terms, and in Canada an improperly stated rate collapses to 5% a year.
Do we add VAT to statutory interest and compensation?
VAT is not added to statutory interest or the fixed compensation: both are outside the scope of VAT, so they are claimed without VAT on top. Show them as separate line items and the paper trail stays clean.
Will charging interest damage client relationships?
Charging interest does not damage client relationships when the fee is applied by the system and waived by a person: practitioners consistently report that consistent enforcement plus a personal waiver preserves the relationship rather than straining it. No controlled study shows that late fee threats speed up payment, so be wary of anyone quoting proof. Charging is a system behaviour; forgiving is a relationship gesture.
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About the editorial team
Denym started Paidnice in 2022 after customers paying late left his own business short on payroll. He has led it to $1 billion collected on time across more than 1 million invoices, and writes about credit control, late fees and getting paid on Xero and QuickBooks.
Ashley is a co-founder and lead developer of Paidnice and has built accounting software for more than 10 years. He builds the ledger connections that put reminders, late fees and payments into Xero, QuickBooks and ERPs such as NetSuite and Business Central. Before Paidnice he co-founded A2X, ecommerce accounting software for Xero and QuickBooks.
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