How to Charge Late Payment Fees and Interest (A UK Freelancer's Guide)
Late payment is the tax freelancers pay for not being a big company. The work is done, the invoice is sent, the due date passes, and the money that was supposed to smooth your month just sits in someone else's account. Most freelancers absorb it, chase it politely, and quietly resent it. Very few realise that in the UK the law already put a price on it, and that price is yours to charge.
Under the Late Payment of Commercial Debts (Interest) Act, a business that pays you late owes you interest and a fixed fee on top of the invoice, automatically, whether or not your contract mentions it. Most freelancers never claim a penny of it, usually because nobody told them it was there. It applies to UK freelancers and contractors billing other businesses.
What the law says you're owed
When one business owes another business money for goods or services and pays late, the Late Payment of Commercial Debts (Interest) Act 1998 gives the supplier three things without any need for a clause in the contract:
- Statutory interest on the overdue amount, at 8% a year plus the Bank of England base rate.
- A fixed sum per invoice as compensation for the cost of chasing, from £40 to £100.
- Reasonable recovery costs above that fixed sum if it didn't cover what pursuing the debt actually cost you (for example a debt-collection agency's fee).
The important word is "commercial". This applies to business-to-business debts. It does not apply when your customer is a consumer paying as an individual, and it isn't the same regime as charging a private client interest, which has to be written into your terms. For the freelancers and contractors this guide is aimed at, though, your clients are almost always businesses, and that means the Act is behind you by default.
"By default" is the part people miss. You don't have to have mentioned interest in your contract, and a client can't sign it away with small print unless they've offered you a "substantial" alternative remedy in return. The right exists the day the payment becomes late, which is the day after your agreed due date (or 30 days after the invoice or the work, if you never agreed a date).
The fixed compensation fee
The easiest part to claim, and the one most worth knowing, is the fixed compensation. It's a flat amount you can add per late invoice, no calculation required, set by the size of the debt:
- Overdue invoice up to £999.99: you can charge £40.
- Overdue invoice of £1,000 to £9,999.99: you can charge £70.
- Overdue invoice of £10,000 or more: you can charge £100.
It's per invoice, not per client and not per chase, so three overdue invoices from the same client carry three fixed sums. On a small invoice the £40 can dwarf the interest itself, which is rather the point: the fee exists to compensate you for the time and hassle of pursuing money you should already have, and that cost is real whether the invoice was for £200 or £2,000.
How statutory interest works
Statutory interest runs at 8% per year plus the Bank of England base rate. If the base rate is 4.75%, your statutory rate is 12.75% a year. Because it's an annual rate on a one-off debt, you convert it to a daily amount and multiply by the number of days the invoice is late:
- Annual interest = overdue amount × statutory rate.
- Daily interest = annual interest ÷ 365.
- Interest owed = daily interest × days overdue.
The clock starts the day after payment was due and stops the day you're paid. One thing to check is the base rate itself, because it moves: for late-payment purposes the rate is fixed twice a year (the base rate on 31 December applies for the first half of the following year, and the rate on 30 June applies for the second half), so use the figure that was in force for the period your invoice was late. The current base rate is on the Bank of England's website.
How to charge late payment fees in five steps
1. Confirm the debt qualifies
Check three things: your client is a business, the payment is genuinely past its due date, and the delay isn't down to a query you haven't answered. If the invoice is late because it was wrong or the client is waiting on something from you, fix that first. The Act is for late payment, not disputed payment.
2. Add up the fixed compensation
Look at the overdue invoice's value and read the fixed sum straight off the table above: £40, £70 or £100. If more than one invoice from the same client is late, each one earns its own fixed sum.
3. Calculate the interest
Take the overdue amount, multiply by the statutory rate (8% plus the base rate for the relevant period), divide by 365 for the daily figure, and multiply by the number of days late so far. Because interest keeps accruing until you're paid, quote it "as at" today's date and note that it continues daily.
4. Put it on a fresh document
Don't scribble on the original invoice. Issue a new one, or a statement, that shows the original amount, the interest to date, the fixed compensation, and the new total. Keeping the late-payment charges as their own clearly labelled lines makes the demand easy to understand and easy to pay, and leaves your original invoice untouched as the record of the work.
5. Send it calmly, and escalate only if needed
Send it like any other invoice, with a short, factual covering note. Most of the time the arrival of an interest charge is enough to move an invoice to the top of someone's pile. If it still isn't paid, your next steps are a formal letter before action, then the small claims track of the County Court (money claims online), which is designed to be used without a solicitor for straightforward debts.
A worked example
Say a client owes you £2,000, the invoice is 30 days past its due date, and the base rate for the period was 4.75%, giving a statutory rate of 12.75%.
- Annual interest: £2,000 × 12.75% = £255.
- Daily interest: £255 ÷ 365 = £0.6986 a day.
- Interest for 30 days: £0.6986 × 30 = £20.96.
- Fixed compensation (the £1,000 to £9,999.99 band): £70.
- Total late-payment charges: £20.96 + £70 = £90.96, on top of the original £2,000.
Notice how the fixed £70 does most of the work on a debt of this size, and how modest the interest is over a single month. That's typical: the interest matters on large or long-overdue invoices, while the fixed sum is what makes chasing a small one worth the effort. Together they turn "please pay" into a number, and a number is harder to ignore than a request.
Should you actually charge it?
Having the right and using it are different decisions, and the honest answer is: usually a reminder first, the charge in reserve. Most late payment is inertia rather than refusal, an invoice that landed in a busy inbox and never got actioned, and a friendly nudge on or just after the due date clears the majority of it without anyone reaching for statute.
Reach for the charge when the polite route has plainly failed, when a client is repeatedly and casually late, or when the sum and the delay are large enough that the interest is real money. You can also mention, gently, in your standard terms that you reserve the right to statutory interest and compensation on late payments; the clients who pay on time won't notice, and the ones who don't are exactly who the sentence is for. What you should avoid is threatening it in conversation and never following through, which trains a client to treat your due dates as suggestions.
The relationship maths is simpler than the dread makes it. A good client who slipped up once will understand a correctly applied charge, or you can waive it as a goodwill gesture from a position of strength. A client who treats a fair, lawful late-payment charge as an outrage is telling you how the rest of the relationship will go.
Getting paid on time in the first place
Charging for late payment is a cure. The better return is on prevention, and most of it is unglamorous admin that pays for itself the first time an invoice would otherwise have drifted:
- Agree clear payment terms in writing before you start, and put the due date on the invoice as an actual date, not "net 30". Fourteen days is increasingly normal for freelancers.
- Invoice promptly and accurately from real records, so there's nothing to query. An invoice built from a submitted timesheet arrives right the first time.
- Make paying frictionless: bank details on the invoice, the correct contact in the "to" field, the invoice number in the subject line.
- Track every invoice from sent to paid so nothing falls off your radar, and chase the moment it's due rather than weeks later.
- Let a reminder go out on time, every time. Automatic, scheduled reminders remove the awkwardness and the forgetting in one move.
That last point is where software earns its place. VibaCloud builds the invoice from your submitted, billable hours, tracks its status, and can send polite, scheduled payment reminders for you as the due date passes, so most invoices get paid before charging anyone interest is even on the table. When one doesn't, the sums above are waiting.
Key takeaways
- UK business clients who pay late owe you statutory interest (8% plus the Bank of England base rate) and a fixed compensation fee, automatically, with no contract clause required.
- The fixed fee is £40 (invoices up to £999.99), £70 (£1,000 to £9,999.99) or £100 (£10,000+), per overdue invoice.
- Interest = overdue amount × statutory rate ÷ 365 × days late, running from the day after the due date until you're paid.
- Use the base rate that was in force for the period the invoice was late, and check the current figure on the Bank of England site.
- Put the charges on a fresh invoice or statement, keeping the original invoice as the clean record of the work.
- A polite reminder usually beats a charge; keep the statutory route in reserve for repeat or serious lateness.
- Prevention pays best: clear terms, prompt accurate invoices, and automatic reminders stop most late payment before it starts.
Frequently asked questions
Can a freelancer legally charge interest on late invoices in the UK?
Yes, when the client is a business. The Late Payment of Commercial Debts (Interest) Act 1998 gives you statutory interest of 8% a year plus the Bank of England base rate, plus a fixed compensation sum, on overdue business-to-business invoices, whether or not your contract mentions it. It doesn't apply to consumer clients, where interest has to be written into your terms.
How much is the fixed late payment fee?
It's set by the size of the overdue invoice: £40 for debts up to £999.99, £70 for £1,000 to £9,999.99, and £100 for £10,000 or more. You can add it once per late invoice, so several overdue invoices from the same client each carry their own fixed sum.
How do I calculate statutory interest on a late payment?
Multiply the overdue amount by the statutory rate (8% plus the Bank of England base rate for the relevant period), divide by 365 to get the daily interest, then multiply by the number of days the invoice is late. For example, £2,000 at a 12.75% rate is about 70p a day, or roughly £21 over 30 days, plus the fixed compensation.
Do I have to have mentioned interest in my contract?
No. The right to statutory interest and compensation on late business payments applies automatically under the Act. A contract can't remove it unless it offers a substantial alternative remedy in return. You can still note in your terms that you reserve the right to charge it, which sets expectations, but the entitlement exists either way.
Should I actually charge a client for paying late?
Often a polite reminder is the better first move, since most late payment is inertia rather than refusal. Keep the statutory charge in reserve for clients who are repeatedly or seriously late, or where the sums are large. Applying it correctly is reasonable and lawful; a client who treats a fair late-payment charge as an outrage is showing you something useful.
What can I do if a client still won't pay after I add interest?
Send a formal letter before action stating what's owed and the deadline, then, if that fails, use the small claims track of the County Court through the Money Claim Online service, which is designed to be used without a solicitor for straightforward debts. Keeping clear records and invoicing from submitted timesheets makes any claim much easier to evidence.
