Charging for Patience: Recovering Interest on Overdue Invoices in 2026

An overdue invoice is not simply a receipt that has arrived late. For the supplier, it is an involuntary extension of credit, funded from working capital and often from an overdraft. Most UK suppliers chase the principal sum. Fewer calculate, claim and recover the interest that has been accruing on that principal since the day after the agreed due date. In 2026, with cash-flow discipline still central to small-business survival, that omission is worth correcting.

Two entitlements, usually confused

The statutory regime for late payment in commercial transactions provides two distinct remedies. The first is compensation: fixed sums that compensate the supplier for the administrative cost of chasing an overdue debt. The second is interest: a daily accrual on the outstanding sum. They are separate entitlements and should be recorded separately in the ledger, the chase letter and any final demand.

Compensation is often the more visible claim because it is a defined amount. Interest is quieter. It accumulates in the background, requires a calculation and depends on the date from which it runs. That may explain why it is so frequently left unbilled. But an entitlement that is not claimed is, in practice, a discount granted to the late payer at the supplier's expense.

Where the statutory right comes from

For qualifying business-to-business contracts in the UK, the Late Payment of Commercial Debts (Interest) Act 1998 implies a term into the contract requiring interest on late payment. The statutory rate is 8% above the Bank of England base rate. It is not a fixed 8%. The base rate in force during the period of lateness determines the actual rate, and movements in that base rate can affect the accrual.

Statutory interest is simple interest, not compounded. It normally runs from the day after the agreed due date. Where the contract is silent on payment terms, the statutory backstop supplies a default period, generally 30 days after the invoice is received, unless a different period has been agreed. The precise date matters: a claim that starts a week too early is vulnerable to challenge, and a claim that starts a month too late leaves money on the table.

Calculating the daily accrual

The arithmetic is straightforward once the due date and rate are fixed. The daily interest is the outstanding principal multiplied by the annual rate, divided by 365. In a leap year, use 366. The total is the daily figure multiplied by the number of days late.

For illustration only, suppose an invoice for £10,000 is due on 15 April 2026 and is paid on 14 June 2026, a period of 60 days. If the applicable rate were 12% - that is, 8% above an illustrative 4% base rate - the annual interest would be £1,200. The daily accrual would be £1,200 divided by 365, or £3.29. Over 60 days, the interest would be £197.26. The base rate used here is illustrative; the actual rate must be checked for the relevant period.

Several practical points follow. First, calculate on the outstanding principal, normally the invoice total including any VAT that has fallen due. Second, if the customer pays in part, recalculate from the date of part payment rather than allowing the original figure to run unchallenged. Third, keep a dated calculation on file. A short schedule showing principal, rate, start date, end date and daily accrual is more persuasive than a rounded figure in a letter.

Contractual interest and the statutory fallback

Many suppliers assume that the statutory rate applies automatically. It does not. A contract may contain its own interest clause, and commercial parties are generally free to agree a rate. Contractual interest may be higher than the statutory rate, and it may permit compounding. It may also be lower. The key question is whether the contractual remedy is a substantial remedy for late payment. If it is not, the statutory implied term may still do the work. A clause that imposes a purely nominal rate, or one that is so difficult to operate that it is effectively no remedy at all, should not be treated as having displaced the statutory entitlement without advice.

Where the contract contains a clear and enforceable interest clause, claim under that clause and identify it in the letter. Where it does not, claim under the 1998 Act. Where the position is ambiguous, take legal advice before issuing a formal demand. The Act applies to commercial contracts, not to consumer debts, and different rules may apply in particular sectors or across the UK's legal jurisdictions.

Putting the claim in a chase letter

The tone of the first interest claim matters. Interest is not a penalty to be brandished; it is compensation for late payment. A short, factual paragraph is usually enough: 'Our records show that invoice [number] remains unpaid. Under clause [x] of our terms / the Late Payment of Commercial Debts (Interest) Act 1998, interest has accrued on the outstanding sum from [date]. The daily accrual is £[amount], and the interest due to [date] is £[amount]. We would prefer to resolve this without further accrual and would be grateful for payment of the principal and interest by [date].'

Attach a calculation. Avoid rounding up. Do not add interest for periods when the invoice was genuinely disputed, and do not claim it on sums that have already been paid. If the customer requests a payment plan, decide in advance whether interest will be frozen for the duration of a compliant plan. A consistent policy is easier to defend than an ad hoc waiver granted under pressure.

Protecting the commercial relationship

The supplier who first mentions interest only after months of silence can sound aggressive. The supplier who mentions it early, calmly and accurately is simply applying the terms of trade. That is why the claim should appear in the second or third chase, not as a surprise in the final demand. It should also appear on the statement of account, so that the customer's finance team can see the accrual building.

There will be times when waiving interest is commercially sensible. A long-standing customer in temporary difficulty may merit forbearance. But a waiver should be recorded as a commercial decision, not treated as proof that the entitlement never existed. The distinction matters when the same customer is late again.

A routine ledger discipline

Interest recovery works best as a back-office routine rather than a periodic campaign. At invoice creation, record the due date and the applicable interest basis. At each chase, calculate the accrual to date. At payment, check whether interest has been settled alongside the principal. At year end, review how much interest was foregone and why.

In 2026, the suppliers who protect their cash flow are not necessarily the most aggressive. They are the ones who treat interest as part of the invoice, not as an afterthought. The money is already owed. The only question is whether it is ever billed.