How to Handle Late Payment Contractually

30-60 minEasy

Handle late payment by sending a payment reminder, then a formal demand citing your contractual and statutory rights to interest and compensation, escalating to a letter before action if payment is not received, and ultimately filing a county court claim if necessary.

Last updated: February 2025

Step-by-Step Guide

1

Send a polite payment reminder

Contact the debtor as soon as the invoice is overdue, referencing the invoice number, amount, and original due date.

Tips
  • •Often late payment is due to administrative delays, and a reminder resolves it.
2

Issue a formal demand

If the reminder is ignored, send a formal demand letter citing the contractual payment terms and your right to statutory interest under the Late Payment of Commercial Debts Act 1998.

Tips
  • •State the interest and compensation amounts you are claiming.
3

Calculate statutory interest and compensation

Interest accrues at 8% above the Bank of England base rate from the day after the due date. Fixed compensation is £40 (debts up to £999.99), £70 (£1,000 to £9,999.99), or £100 (£10,000 plus).

Tips
  • •Include the interest calculation in your demand letter.
4

Escalate to a letter before action or court claim

If payment is still not received, send a letter before action giving 14-30 days to pay. If ignored, file a county court claim through Money Claims Online.

Tips
  • •The threat of court action often prompts payment.

Legal Requirements

The Late Payment of Commercial Debts (Interest) Act 1998 gives businesses the statutory right to claim interest at 8% above the Bank of England base rate on late B2B payments. Fixed compensation of £40-£100 is also claimable. The Act applies automatically to B2B transactions unless the contract provides a substantial remedy that is not unfair to the supplier.

Common Mistakes

Not invoicing promptly, which delays the start of the payment window
Accepting late payment repeatedly without enforcing terms, setting a precedent
Not knowing about or claiming statutory interest and compensation

Template / Example

Dear [Client], Invoice [number] for £[X] was due on [Date] and remains unpaid. Under the Late Payment of Commercial Debts (Interest) Act 1998, we are entitled to statutory interest of 8% plus the Bank of England base rate, plus fixed compensation of £[40/70/100]. Please arrange payment within 7 days.

When to Get a Solicitor

If the debt is disputed, if the debtor has become insolvent, or if the amount is significant and you are considering court action.

FAQ

Can I charge interest on late payments even if it is not in the contract?

Yes. The Late Payment of Commercial Debts Act 1998 gives you a statutory right to charge interest on late B2B payments regardless of whether your contract mentions it.

What is the current statutory interest rate for late payments?

The rate is 8% above the Bank of England base rate. So if the base rate is 5%, the statutory interest rate for late payments is 13% per annum. The rate changes when the Bank of England base rate changes.

Related Guides

How to Set Payment Terms in a Contract

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How to Send a Letter Before Action

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This is guidance, not legal advice. Consult a solicitor for complex matters.

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