A figure went round the business press on 1 September that deserves more attention than it got. British small businesses are currently owed roughly £26bn in overdue invoices. Around 42% of them are waiting on a late payment right now. And in the same set of numbers, about three quarters of small business owners pay themselves under £20,000 a year.

Put those together and the picture is uncomfortable. A large amount of money that has already been earned is sitting in someone else’s account, while the people who earned it take home less than a full-time salary.

Here is the part most sole traders do not realise. You are not dependent on goodwill to get that money moving. Since 1998 there has been a statutory right to charge interest on a late commercial invoice, at a rate that is currently 11.75% a year, plus a fixed compensation payment on top. It applies automatically whether or not your contract mentions it. Almost nobody claims it.

What you can charge, exactly

The Late Payment of Commercial Debts (Interest) Act 1998 gives a business two things when another business or a public authority pays late.

The first is interest at 8 percentage points above the Bank of England base rate. Bank Rate has been 3.75% since December 2025, so the statutory rate today is 11.75% a year. The second is a fixed sum per overdue invoice to reflect the cost of chasing it:

Invoice value	Fixed compensation you can add
Up to £999.99	£40
£1,000 to £9,999.99	£70
£10,000 or more	£100

That compensation is per invoice, not per customer and not per chasing email. If your actual recovery costs run higher than the fixed sum, you can in appropriate cases claim the reasonable excess as well.

A worked example

Take a £10,000 invoice paid 60 days late.

The interest is the invoice value multiplied by 11.75%, apportioned across 60 days: £10,000 x 0.1175 x 60/365, which comes to £193.15. Add the £100 fixed compensation for an invoice in the £10,000-plus band and the statutory addition is £293.15. The Government used almost exactly this illustration in its own late payment paperwork earlier this year.

On a smaller scale, a £2,000 invoice paid 45 days late generates about £29 of interest plus £70 compensation, so roughly £99. That will not retire anyone, but it changes the conversation. An invoice that costs a client nothing to ignore gets ignored. An invoice that quietly accrues 11.75% and a fixed fee gets paid.

When does an invoice become late?

Later than most people assume, and earlier than most clients claim.

If your contract states a payment date, the clock starts the day after it. If it does not, the default position for business-to-business work is that payment terms should not normally exceed 60 days unless a longer period is genuinely fair to both sides. For a public authority customer the usual maximum is 30 days. A supplier who has been quietly tolerating 90-day terms because a big client always pays like that may be tolerating something the client cannot actually insist on.

Two more details worth knowing. The Small Business Commissioner’s guidance is that you can generally pursue interest and compensation for up to six years after the payment period ended, so old unpaid invoices are not automatically beyond reach. And statutory interest normally cannot be claimed where your contract sets its own interest rate instead, which is exactly why some larger customers put a token rate in their terms.

How to actually claim it

The mechanics are unglamorous and they work.

Start by confirming the debt properly: re-send the invoice with the purchase order, the contract or terms, and proof that the work was delivered. Then issue a formal payment demand rather than another polite nudge. State the principal, the due date, the statutory rate of 11.75%, the number of days overdue, the interest accrued to date, the fixed compensation and a final deadline.

Do not accept the word disputed without particulars. Ask the customer to identify the disputed amount, the contractual basis for the dispute, their evidence and the date they first raised it. A vague dispute raised the day after your demand is a delaying tactic, and treating it as a real one is how invoices age into write-offs.

If the customer is a large business, the Small Business Commissioner can help with unresolved payment complaints. Beyond that, a letter before action and then the GOV.UK money claim route are both genuinely usable for a straightforward, well-evidenced debt, and interest can be claimed within the court process.

Check who you are dealing with before you sign

There is a public dataset most small suppliers never look at. Under the Reporting on Payment Practices and Performance Regulations 2017, large UK companies have to publish, twice a year, how they actually pay their suppliers: their standard terms, their maximum payment period, the share of invoices paid within 30 days, within 31 to 60 days and beyond 60 days, their average time to pay and the proportion of invoices missed entirely.

A company is generally caught if it exceeds two of three thresholds: turnover above £36m, a balance sheet total above £18m, or more than 250 employees. So for most large customers you can look up their payment record before you quote, and price or structure the work accordingly. A firm that pays 40% of invoices late is not a cash flow surprise waiting to happen; it is a documented one.

What is changing, and what has not

In March 2026 the Government published its response to a late payment consultation under the banner Time to Pay Up, describing it as the strongest crackdown on late payment in over 25 years. The intended measures include capping large firms’ payment terms at 60 days and later 45, making statutory interest mandatory so it cannot be contracted out of, requiring large firms to report the interest they owe and actually pay, board level accountability for persistent late payers, stronger Small Business Commissioner powers including spot checks and penalties, and a statutory deadline for raising invoice disputes.

These are proposals, not current law. Nothing in that list changes what you can do this afternoon. The honest reading is that the direction of travel favours suppliers, and that in the meantime the existing rights are the ones that count. If the reforms do land as described, the biggest practical change is that statutory interest becomes unavoidable rather than something you have to invoke.

Anyone who wants to argue for a particular version of these reforms has a route to do it, incidentally: the Treasury’s pre-Budget evidence window is the mechanism we described in what sole traders can actually send the Treasury.

Frequently asked questions

Will charging interest cost me the client? Sometimes it is worth asking whether that client is an asset. A customer who pays 60 days late is financing their business with your money. That said, the usual sequence is to state the entitlement clearly and offer to waive it on immediate payment, which resolves most cases without a confrontation.

Do I need it in my contract? No. Statutory interest applies automatically to qualifying commercial contracts. The exception runs the other way: if your contract specifies its own interest rate, that usually replaces the statutory one, so check what you signed.

Does this work against consumers? No. The 1998 Act covers business to business and business to public authority contracts. Late paying consumers are a different problem with different remedies.

What if they go under owing me money? Then you are an unsecured creditor and interest is academic. This is the real argument for chasing early rather than politely: the invoices that never get paid are usually the ones that were allowed to age quietly while someone else’s problems got worse.

Late payment gets discussed as though it were weather, an unavoidable condition of trading small. It is not. It is a transfer of working capital from the people who can least afford to provide it, and the law has taken a side on that since 1998. Your next overdue invoice is worth 11.75% a year plus a fixed fee. Send the number, not the reminder.