Guide

Comply with the law when providing goods and services

Late payment law

Late payment of bills can be frustrating and can cause serious cashflow problems for businesses of any size.

The law aims to discourage late payment by allowing businesses to charge each other interest on overdue invoices under the Late Payment of Commercial Debts (Interest) Act 1998.

Unless your terms and conditions state otherwise, an invoice becomes due within 30 days of the invoice date. If it is not paid within this time you are entitled to charge interest.

It is not compulsory to charge interest but if you do it should be calculated at the Bank of England base rate plus 8 per cent. 

The law also allows you to claim compensation for late payment at the following rates:

  • £40 for debts up to £999
  • £70 for debts between £1,000 and £9,999.99
  • £100 for debts more than £10,000

Some firms choose not to charge interest because they are concerned it may alienate important customers. Developing strong credit management procedures can help avoid this conflict of interests.

And remember - your purchase invoices may also attract interest if you fail to pay them on time.

The Small Business Commissioner

The Small Business Commissioner works to tackle late payment, non-payment and unfavourable payment practice in the private sector under the Enterprise Act 2016. 

The Commissioner can investigate complaints from small businesses (a business with less than 50 employees) and their larger client (a business with more than 50 employees). It can make recommendations to resolve a dispute. These are not legally binding. Where appropriate, the Commissioner may publish a report about the complaint. This may name the businesses involved. 

The Office of the Small Business Commissioner offers free, impartial help to small businesses by:

  • checking contracts 
  • providing advice on getting invoices right 
  • signposting them to existing support and dispute resolution services