A client owes you £3,500. The invoice was due six weeks ago. You've sent three reminders, each one progressively less polite. Nothing. Radio silence. You're furious, but you're also unsure: what can you actually do about it? Can you charge interest? Can you take them to court? Is it worth the hassle?
Here's the good news: UK law is firmly on your side. The Late Payment of Commercial Debts (Interest) Act 1998 gives freelancers powerful legal tools to recover unpaid invoices — including the right to charge statutory interest and claim fixed compensation, automatically, without needing a solicitor. Most freelancers don't know these rights exist. By the end of this guide, you'll know exactly how to use them.
The Late Payment of Commercial Debts (Interest) Act 1998
This is the cornerstone of UK late payment law, and every freelancer should know it exists. Originally passed in 1998 and amended several times since (most recently incorporating the EU Late Payment Directive via the 2013 regulations), it gives businesses — including sole traders and freelancers — the statutory right to claim interest and compensation when another business pays late.
The Act applies automatically. You don't need to include a clause in your contract. You don't need to warn the client in advance. If a business-to-business invoice goes unpaid past its due date, you have the legal right to claim. Full stop.
That said, including late payment terms in your contract and on your invoices is strongly recommended. Not because the law requires it, but because it sets expectations and often prevents late payment in the first place. A client who sees "statutory interest will be charged on overdue invoices" on your paperwork is much more likely to pay on time. Read our guide on how to add late fees to your freelance invoices for the practical details.
Who the Act Applies To
The Act covers business-to-business (B2B) transactions only. This means:
- Covered: Freelancer invoicing a limited company, partnership, LLP, sole trader, charity, or public sector body
- Covered: Freelancer invoicing another freelancer for a commercial service
- NOT covered: Freelancer invoicing a private individual for personal (non-business) use
In practice, this means the vast majority of freelance invoices are covered. If your client is a business of any kind, the Act applies. The only exception is if you're selling directly to a consumer — which is relatively uncommon for most freelancers.
There's no minimum invoice size. Whether you're owed £50 or £50,000, the same rights apply.
Statutory Interest Rate Explained
Under the Act, you can charge simple interest at 8% per annum above the Bank of England base rate. This is not compound interest — it's calculated as a flat annual rate.
As of early 2026, the Bank of England base rate is 4.5%. That means the current statutory interest rate is:
8% + 4.5% = 12.5% per annum
Interest starts accruing from the day after the agreed payment due date (or, if no due date was agreed, 30 days after the later of delivery or the invoice date). It continues until the debt is paid in full.
The daily interest rate is calculated as:
(Annual rate ÷ 365) × outstanding amount = daily interest
So for a £3,500 invoice at 12.5%: (0.125 ÷ 365) × £3,500 = £1.20 per day. That adds up quickly — over 60 days overdue, that's £71.92 in interest alone.
Fixed Compensation Amounts
In addition to interest, the Act entitles you to fixed compensation for the cost of recovering the debt. This is a flat fee that applies per invoice, regardless of how long the payment is overdue:
| Unpaid Debt Amount | Fixed Compensation |
|---|---|
| Up to £999.99 | £40 |
| £1,000 – £9,999.99 | £70 |
| £10,000 or more | £100 |
This compensation is payable in addition to the statutory interest. You can also claim reasonable costs of recovering the debt beyond the fixed compensation — for example, if you've had to instruct a solicitor or use a debt recovery agency. However, you'd need to demonstrate that the fixed compensation is insufficient to cover your actual recovery costs.
How to Calculate What You're Owed
Let's work through a complete example so you can see exactly how to calculate a claim.
Example Calculation
Invoice: £3,500 · Due: 1 January 2026 · Paid: 3 March 2026 (61 days late) · BoE base rate: 4.5%
That's an extra £143.29 the client owes you on top of the original invoice — and the interest continues to accrue until they pay. For larger invoices or longer delays, the numbers get significantly bigger.
Don't want to do the maths manually? Use our free late payment interest calculator to work out exactly what you're owed in seconds.
Can You Contractually Opt Out?
Short answer: mostly no.
Some clients try to include contract terms that exclude or limit your right to claim late payment interest. The Act addresses this directly: any contract term that purports to oust or vary the right to statutory interest is void unless it provides a "substantial remedy" for late payment.
What counts as a "substantial remedy"? The test considers whether the remedy is:
- Sufficient to compensate the supplier for late payment
- Fair and reasonable, considering the interests of both parties
- Not being used to take advantage of the supplier's weaker bargaining position
In practice, a clause that says "no interest shall be charged on overdue invoices" is almost certainly void. A clause that offers, say, 2% interest instead of the statutory rate might also fail the test unless there's a genuine commercial justification.
If you spot a clause like this in a client's contract, don't panic. It's likely unenforceable. But it's worth flagging it during contract negotiations and pushing for its removal — or at minimum, adding a note that statutory rights are preserved.
A contract cannot strip away rights that Parliament specifically designed to protect small businesses and freelancers. If a clause tries to, the law overrides it.
How to Claim: Step by Step
Knowing your rights is one thing. Actually exercising them is another. Here's the step-by-step process for claiming statutory interest and compensation on an overdue invoice.
1 Confirm the Invoice is Genuinely Overdue
Check your contract or invoice terms for the agreed payment period. If none was specified, the default is 30 days from the later of: (a) delivery of the goods/services, or (b) the date the debtor received the invoice. Make sure the due date has actually passed before you start claiming interest.
2 Send a Reminder With Interest Notice
Your first follow-up after the due date should mention that statutory interest is now accruing. This doesn't need to be aggressive — something like:
"Please note that this invoice is now overdue. In accordance with the Late Payment of Commercial Debts (Interest) Act 1998, statutory interest at 8% above the Bank of England base rate is accruing from [due date], along with a fixed compensation charge of £[40/70/100]."
This single sentence resolves a remarkable number of overdue invoices. Most clients pay immediately once they realise there's a legal framework behind the request.
3 Issue a Formal Demand
If the reminder doesn't work, send a formal demand letter. This should include:
- The original invoice details (number, date, amount)
- The due date and how many days it's been overdue
- The statutory interest amount calculated to date
- The fixed compensation amount
- A total amount owed
- A deadline for payment (typically 7–14 days)
- A warning that further action will follow if unpaid
4 Send a Letter Before Action
If the formal demand is ignored, the next step is a Letter Before Action (LBA). This is a legal requirement before you can issue court proceedings — the Pre-Action Protocol for Debt Claims requires it. The LBA gives the debtor a final opportunity to pay before you escalate to court.
We have a free Letter Before Action template you can use — just fill in your details.
5 File a County Court Claim
If the LBA doesn't produce payment within 14–30 days, you can file a claim through the County Court. For debts up to £10,000, this goes through the Small Claims Track — a simplified process designed for cases without legal representation. You can file online via Money Claims Online (MCOL) at gov.uk.
Court fees range from £35 (for claims up to £300) to £455 (for claims up to £10,000). These fees are added to your claim, so the debtor pays them if you win. For a detailed walkthrough, see our guide on taking a client to Small Claims Court.
The Pre-Action Protocol for Debt Claims
Before issuing any court proceedings, you must follow the Pre-Action Protocol for Debt Claims. This is a set of rules that courts expect both parties to follow before litigation. Failure to comply can result in penalties — even if you win the case.
The key requirements are:
- Send a Letter of Claim (your Letter Before Action) that includes the amount owed, how it's calculated, and what the debtor should do
- Allow 30 days for the debtor to respond (they can pay, dispute, or propose a payment plan)
- Consider any response before proceeding — if the debtor offers a reasonable payment plan, the court expects you to consider it
- Consider alternative dispute resolution (ADR) — mediation is available through the Small Claims Mediation Service and courts look favourably on parties who've attempted it
The protocol exists to encourage settlement without litigation. In most cases, a well-crafted LBA resolves the matter. Courts exist as a backstop, not a first resort.
Recent Changes and Updates (2026)
The core legislation hasn't changed dramatically since the 2013 amendments that incorporated the EU Late Payment Directive. However, several developments are relevant for freelancers in 2026:
The Prompt Payment Code
The government's Prompt Payment Code continues to evolve. Signatories commit to paying 95% of invoices within 60 days and to work towards 30 days as standard. Large companies are now required to report their payment practices and performance twice yearly. If your client is a signatory and consistently pays late, you can report them to the Small Business Commissioner.
The Small Business Commissioner
Established under the Enterprise Act 2016, the Small Business Commissioner can investigate complaints about late payment by larger businesses. While the Commissioner can't force payment, they can name and shame persistent offenders and provide a free mediation-like service. Worth knowing about if your client is a larger company.
Digital Invoicing and Evidence
Courts increasingly accept digital evidence — emails, invoicing platform records, and automated payment reminders are all admissible. If you're using invoicing software that timestamps every action, you're building a perfect evidence trail without any extra effort.
Bank of England Base Rate
The BoE base rate directly affects your statutory interest calculation. After the rate rises of 2022–2023, the rate has been gradually adjusting. As of early 2026, it sits at 4.5%, making the total statutory interest rate 12.5%. Check the current rate at bankofengland.co.uk before calculating your claim.
Other Laws That Help Freelancers
The Late Payment Act isn't the only legal protection available. Here are other pieces of legislation worth knowing about:
The Limitation Act 1980
You have 6 years from the date a debt becomes due to bring a claim in England and Wales (5 years in Scotland). After that, the debt becomes "statute-barred" and you lose the right to pursue it through the courts. Don't sit on unpaid invoices — the clock is ticking from day one.
The Supply of Goods and Services Act 1982
This Act implies a term into every contract for services that the client will pay a reasonable price within a reasonable time. If you don't have a written contract specifying payment terms, this Act provides a fallback. However, relying on implied terms is far weaker than having explicit ones — always use a contract.
The Employment Rights Act 1996 (and IR35)
While primarily about employment, this Act is relevant for freelancers who are caught by IR35 (off-payroll working rules). If you're deemed to be a worker rather than genuinely self-employed, you may have additional rights including the right to be paid for work performed. The IR35 landscape continues to evolve — if you're unsure of your status, seek specialist advice.
The Consumer Rights Act 2015
This primarily protects consumers, but if you're a freelancer providing services to a consumer (B2C), it sets standards for the quality of service you must provide. It doesn't directly help with late payment (the Late Payment Act doesn't cover B2C), but it's part of the broader legal context for freelance work.
The Data Protection Act 2018 (UK GDPR)
Relevant if you're sharing client information with debt recovery agencies or in court proceedings. You have a legitimate interest in pursuing debts owed to you, which provides a lawful basis for processing the client's data for this purpose.
Calculate Your Late Payment Claim in Seconds
Enter the invoice amount, due date, and payment date. We'll work out the statutory interest and compensation automatically.
Late Payment Calculator →Practical Tips for Using the Law Effectively
Knowing the law is one thing. Using it strategically is another. Here's how to make these legal tools work for you in practice:
Mention the Act Early and Often
Include a reference to the Late Payment of Commercial Debts (Interest) Act 1998 in your contract, on your invoices, and in your very first overdue reminder. Most clients pay before it ever becomes a real dispute — the legal reference alone is usually enough.
Keep Meticulous Records
Save every email, every invoice, every reminder. If a dispute reaches court, you'll need to demonstrate: what was agreed, when the work was delivered, when the invoice was sent, when it was due, and what follow-up you sent. Digital invoicing tools that create automatic audit trails are invaluable here.
Don't Be Afraid to Claim
Many freelancers worry that claiming statutory interest will damage the client relationship. Consider this: a client who doesn't pay you on time has already damaged the relationship. Asserting your legal rights is not aggressive — it's professional. And in most cases, the mere mention of statutory interest accelerates payment without any relationship damage at all.
Use the Fixed Compensation Strategically
The £40/£70/£100 fixed compensation is often the most psychologically effective part of the claim. Clients who shrug off interest charges react differently when they see a specific, named penalty. Include it in every overdue notice.
Consider the Commercial Reality
For very small debts or clients you want to retain, you might choose not to enforce interest — that's your prerogative. But always mention it, even if you later waive it as a goodwill gesture. "I've waived the £70 compensation charge on this occasion" is a much stronger position than never mentioning it at all.
The law gives freelancers real teeth when it comes to late payment. The tragedy is that most never use them — not because they can't, but because they don't know they exist.
When to Escalate (and When to Walk Away)
Not every unpaid invoice is worth pursuing to court. Here's a realistic framework:
- Under £200: Send reminders and claim interest, but court action may not be cost-effective unless it's a matter of principle. Consider whether the time spent is worth more than the debt.
- £200 – £2,000: Follow the full process: reminders → formal demand → LBA → Small Claims. Court fees are proportionate and the process is straightforward.
- £2,000 – £10,000: Absolutely pursue this. The amounts justify the effort, and the Small Claims process handles it efficiently.
- Over £10,000: Consider instructing a solicitor. Claims above £10,000 go through the Fast Track or Multi-Track, which are more complex. Many solicitors offer a free initial consultation for debt recovery.
In all cases, the most important thing is to act promptly. The longer you wait, the harder recovery becomes. A debtor who's slow to pay at 30 days may be unreachable at 6 months.
Protect Yourself Before It Gets to This Point
The best approach to late payment is prevention. Everything in this article is a safety net — and safety nets are for when other things fail. Here's what should come first:
- Use a written contract with clear payment terms, late payment clauses, and a defined scope
- Take a deposit before starting work — 50% is standard for new clients. Use milestone payments for larger projects
- Invoice promptly and include all necessary details — our payment terms generator builds contract clauses in minutes
- Automate your follow-ups so nothing falls through the cracks
- Vet new clients — check Companies House, ask for references, trust your instincts
A freelancer with good contracts, prompt invoicing, and automated chasing rarely needs to invoke the Late Payment Act. But when you do need it, it's one of the most powerful tools in your arsenal.