Late Payment Act 1998 for tradespeople: claim 8% interest plus recovery costs (worked example)

A mate of mine, a sparky running a three-man firm, did the first and second fix on a small block of flats for a main contractor last winter. £6,800, signed off, no snags. Then the contractor went quiet. Thirty days came and went. Sixty. Every time he rang it was "next valuation, mate". What he didn't know is that the moment that invoice went past its due date, the law was already adding money to it on his behalf. He wasn't owed £6,800 any more. He was owed a fair bit more, and the contractor was legally on the hook for every penny of it.

The law doing that work is the Late Payment of Commercial Debts (Interest) Act 1998. Most trades have heard the name and assume it's solicitor territory. It isn't. It's a tool you can use yourself, today, on any business that's sat on your invoice.

This guide is the deeper dive that the chasing late payment guide pointed at. What the Act actually gives you, how the interest is worked out, the fixed costs you can add on top, and a full worked example with real numbers so you can see exactly what an overdue invoice is earning you.

What the Act actually is, and who it covers

The full name is the Late Payment of Commercial Debts (Interest) Act 1998, tidied up by amendments in 2002 and 2013. It does one job: it gives a business that's owed money by another business an automatic right to charge interest and costs on a late invoice.

The word "commercial" is the bit that matters. The Act only applies when one business owes another business. So you're covered if the customer is:

• A main contractor or another trade firm
• A property management or letting company
• A commercial premises, an office, a shop, a pub
• A landlord who's clearly running a property business
• Any limited company, partnership, or sole trader acting in the course of business

You're not covered when the customer is a private homeowner paying for work on their own house. That's a consumer, and the Act leaves them out on purpose. For those jobs you fall back on your own terms and conditions, or on the small claims process for the debt itself. There's more on the consumer route in the main late payment guide.

Quick sanity check before you chase a business: look the customer up on Companies House. Thirty seconds tells you whether they're a registered company, whether they're still trading, and the correct legal name to put on a demand. If the company's heading into a winding-up, you want to know that before you spend on court fees.

The three things you can claim

On a late B2B invoice you can add three layers on top of the original debt. The first two are the ones nearly every trade leaves on the table.

1. Statutory interest at base rate plus 8%

The headline number. Interest runs at the Bank of England base rate plus eight percentage points. With the base rate sitting around 4.5%, the statutory rate is about 12.5% a year. It accrues daily, starting the day after payment was due, and keeps running until the debt is cleared.

Here's the part that catches people out. You don't use today's base rate. The rate is fixed in six-month blocks. For a debt that goes late between 1 January and 30 June, you use the base rate that was in force on the previous 31 December. For a debt that goes late between 1 July and 31 December, you use the rate in force on 30 June. Once it's set, it stays locked for the life of that debt even if the Bank moves the base rate afterwards. Use the wrong rate and a judge will spot it, so it's worth getting right.

2. A fixed recovery cost

On top of interest you add a flat compensation sum, set by the size of the debt:

• Debt under £1,000 gets £40
• Debt £1,000 to £9,999.99 gets £70
• Debt £10,000 or more gets £100

This is per invoice, not per chase. It's there to cover the admin of having to come after the money at all, and you get it whether the chase took you five minutes or five weeks.

3. Reasonable extra recovery costs

If the fixed sum doesn't cover what it actually cost you to recover the debt, you can claim the difference. A debt collection agency's fee, a solicitor's letter, the genuine cost of the time you lost. You have to be able to show the cost was real and reasonable, but the right exists, and it's worth flagging in a demand because it raises the stakes for the debtor.

All three are statutory. That means they apply on their own. You don't need them written into your contract, you don't need the customer to sign anything, and the customer can't refuse them. The only way a business escapes the Act is if the contract offered a "substantial remedy" instead, which in practice almost no informal trade contract does.

Worked example: a £6,800 invoice, 72 days late

Back to the sparky. Let's run his actual numbers so you can see the shape of it.

• Invoice: £6,800 to a main contractor, so it's B2B and the Act applies
• Invoice dated 2 February 2026, 30-day terms, so payment was due 4 March 2026
• Still unpaid on 15 May 2026, which is 72 days past the due date
• Reference base rate for the period: 4.5%, so the statutory rate is 12.5%

The interest sum:

• Annual interest: £6,800 × 12.5% = £850
• Daily interest: £850 ÷ 365 = about £2.33 a day
• 72 days of interest: £6,800 × 12.5% ÷ 365 × 72 = £167.67
• Fixed recovery cost (debt is £1,000 to £9,999.99): £70
• Total now owed: £6,800 + £167.67 + £70 = £7,037.67

So the contractor that thought it owed £6,800 actually owes £7,037.67, and that figure climbs by another £2.33 every single day until it pays. Put that number in front of a finance department and the invoice tends to jump up the pile, because every week it ignores you costs it roughly £16 more for nothing.

One tax note worth knowing: statutory interest you actually receive counts as taxable income for the business, so it goes through the books like any other income when you do your HMRC return. It's still money you wouldn't otherwise have had, but don't treat it as tax-free.

The default-terms trap

A lot of trades never write a payment date on the invoice, or never agree one with the customer. People assume that means there's no deadline to enforce. The opposite is true. If you and the customer never agreed a date in writing, the Act sets one for you.

Payment becomes due 30 days after the later of two things: the day you finished the work or delivered the goods, or the day the customer received your invoice. After that 30 days, the clock on interest starts ticking exactly as if you'd set the date yourself.

You can agree a longer period with a business customer, and plenty of main contractors will try to push you to 45 or 60 days. The Act lets you go up to 60 days fairly freely, but a term that drags payment out beyond 60 days has to be genuinely fair to both sides. If it's just the bigger firm leaning on the smaller one, it can be struck out, and the default terms snap back in. So a contractor's "we pay on 90-day terms, mate" is not automatically something you have to swallow.

How to actually claim it

The right is automatic, but you still have to ask for the money. The practical route is short:

• Get your paperwork straight. You need the original invoice, the agreed payment terms (or proof there were none, so the 30-day default applies), and a dated record of when you sent the invoice. That's the whole evidence base.
• Send a written demand that states the original debt, the interest accrued to date, the fixed recovery cost, and the new total. Spell out which Act you're relying on. The statutory-demand letter in the Get-Paid Pack does this line by line.
• Give a clear deadline, usually seven days, and say what happens if it's missed.
• If they still don't pay, file a claim. In England and Wales that's Money Claim Online, which covers debts up to £100,000. In Scotland it's the Simple Procedure. You claim the debt, the interest, the recovery costs, and the court fee all together.

If you'd rather get a second opinion before you escalate, Citizens Advice covers the basics of chasing business debts for free. But honestly, for most overdue trade invoices the written demand with the right figures on it does the job before a court ever gets involved.

What NOT to do

1. Don't assume it covers homeowners. The single most common mistake. You cannot slap statutory interest on a private homeowner's bill under this Act. For consumer jobs you need an interest clause in your own terms and conditions, agreed before the work started, or you're claiming the bare debt through small claims.
2. Don't leave the money on the table. Trades write a polite demand for the original figure and quietly forget the interest and the £70. That's free money you're entitled to, and adding it is also what tells the customer you know your rights and you're serious.
3. Don't use today's base rate on an old debt. Use the fixed reference rate for the right six-month block. Grab the wrong rate and your total is wrong, which hands the debtor an easy reason to dispute the whole demand.
4. Don't bin the paperwork. No invoice, no agreed terms, no proof of when you sent it, and you're trying to claim on memory. Keep the records and the claim is clean. The TradeStash app timestamps every invoice you send, so the date proof is just there.
5. Don't threaten interest you won't chase. If you put the figure on the demand, hold the line through to Money Claim Online or Simple Procedure. An empty threat just teaches the customer that your letters don't mean anything.

The habit that makes all of this easier

Everything above is recovery, and recovery is the back foot. The front-foot move is the same one that prevents most late payment in the first place: invoice the same day the job finishes, with the payment date and your terms printed on it, every time.

An invoice that lands while the work is fresh, with a clear due date and your terms attached, sets the Act's clock running cleanly the moment that date passes. You're not arguing about whether a deadline existed. It's in writing, it's dated, and the law does the rest. The TradeStash app sends that invoice in about 30 seconds from the van, terms baked in, so the paperwork that protects you is done before you've pulled off the drive.