Charging Interest on Late Payments: Every Contractor's Legal Right

When a client pays late, you become their lender — involuntarily, and usually for free. The law disagrees with the 'free' part. Most contractors have a legal right to interest on late commercial payments and never use it, mostly because they don't know it exists or assume it needed to be in the contract. On business-to-business work in the UK, it didn't.

Your statutory right: 8% plus base rate

The Late Payment of Commercial Debts (Interest) Act gives UK businesses a statutory right to interest on late B2B invoices at 8% plus the Bank of England base rate — whether or not your contract mentions it. On top of the interest, you can claim fixed compensation per invoice: £40 for debts under £1,000, £70 up to £10,000, and £100 above that. This applies when your client is a business — a builder, a property company, a shop — not a homeowner.

What it adds up to

The arithmetic, worked through: a £4,000 invoice, 60 days late, with base rate at 4%. Interest runs at 12% a year: £4,000 × 12% × 60/365 ≈ £79. Add the £70 fixed compensation and the late payment just cost your client £149. Not life-changing — but that's not really the point of it.

Interest as leverage, not income

The point is leverage. A line in your second or third reminder — 'Please note this invoice now attracts statutory interest under the Late Payment of Commercial Debts (Interest) Act, currently accruing at £1.31 per day' — changes the conversation completely. It signals, politely and legally, that you know your rights and you're keeping score. Invoices with that line on them have a way of getting paid before the interest amounts to anything.

When to mention it

Timing matters: don't lead with it. Interest talk in a first reminder reads as aggression toward a client who probably just forgot, and goodwill is worth more than £79. The right moment is the firm-letter stage — two or more weeks overdue, no dispute raised, promises already missed. By then it's not a threat; it's bookkeeping.

Homeowner clients: you need a clause

Homeowner clients are different: the statute doesn't cover consumer contracts, so you need an interest clause in your own terms — something like 'overdue balances accrue interest at 4% above base rate' — and it must have been part of the paperwork before work started, not produced afterwards. Keep consumer rates modest; a court will strike out anything that smells punitive.

There's also a quiet secondary effect worth having: a standard line in your terms about late payment interest reads, to anyone paying attention, as 'this contractor follows up'. Serial late payers are screening for the opposite. The clause filters some of them out before they ever hire you, which is worth more than any interest you'd have collected.

Outside the UK

Outside the UK, the same idea exists in different clothes: US states have prompt payment acts covering public and often private construction work, and elsewhere contractual interest is standard practice. Wherever you are, the move is identical — put the rate in your terms, mention it at the firm-letter stage, and let the meter do the negotiating.