Late Payment Interest

What is late payment interest?

Late payment interest is interest a seller charges on an overdue invoice for each day it stays unpaid after the due date. It differs from a flat late fee, which is a one-off charge. Interest keeps building until the invoice is paid.

In the UK, a business can claim statutory interest on late business-to-business and public sector invoices under the Late Payment of Commercial Debts (Interest) Act 1998. The rate is 8% above the Bank of England base rate, plus a fixed sum of £40, £70 or £100 per invoice, unless the contract provides its own substantial remedy. UK statutory interest is simple interest, not compound interest.

In the US, Australia and New Zealand the right to charge interest usually comes from the contract rather than a statute for business invoices, so the rate is normally set out in your payment terms. Check the rules where you trade.