The Remedy in the Small Print: Why Statutory Late Payment Compensation Should Be Routine

The Late Payment of Commercial Debts (Interest) Act 1998 is often described as a dead letter. That is not because the remedy is weak. It is because suppliers treat it as a weapon of last resort rather than a term of trade. For a UK business selling goods or services to another business, the Act implies a right to interest on late payment and to fixed compensation. The right can be excluded only in limited circumstances; a contract term that offers no substantial remedy will not displace it. Yet many invoices are paid late without a claim, and many finance teams have never added the compensation line to a statement.

What the Act provides in plain English

The default statutory rate is 8 percentage points above the Bank of England base rate. Interest runs from the agreed due date, or from the statutory default period if no payment terms were agreed, and is calculated as simple interest on the outstanding sum. On top of interest, the supplier can claim fixed compensation: £40 for a debt below £1,000; £70 for a debt of £1,000 or more but less than £10,000; and £100 for a debt of £10,000 or more. Reasonable costs of recovering the debt may also be recoverable where the fixed sum does not cover them.

The figures are modest in isolation. They become more significant when applied consistently across a ledger. A supplier with twenty overdue invoices at £2,000 each is not chasing £100 of annoyance; it is establishing that late payment carries a price. The purpose is not to punish a customer. It is to remove the implicit discount that late payers enjoy at the supplier's expense.

Take an invoice for £5,000 that is 60 days late. If the base rate were 4%, the statutory rate would be 12%. Interest would be £98.63 (5,000 × 12% × 60/365), and fixed compensation for a £5,000 debt would be £70, giving £168.63. The arithmetic is not the barrier; the conversation is.

Why suppliers almost never claim

The most common reason is relational. A supplier fears that a £70 compensation claim will cost a £70,000 contract. That fear is understandable, but it conflates a request for payment with a demand for damages. A soft claim can be worded as a routine reconciliation. It can give the customer a clear date by which to pay and a clear indication of the sums that will be added if it does not.

The second reason is procedural. Many businesses do not know the tiers, cannot calculate daily interest, or believe the claim must be made in court. It does not. The third is contractual drift. Payment terms are agreed at onboarding and never reviewed. A 90-day term may be lawful, but it should be priced and monitored. If the contract does not provide a substantial remedy for late payment, the statutory scheme may still apply.

The fourth reason is cultural. Late payment is often treated as an unavoidable feature of commercial life, particularly for small suppliers dealing with larger customers. That attitude is costly. It teaches customers that the supplier's terms are aspirational and that the cost of delay falls entirely on the supplier. Normalising the statutory claim does not require hostility. It requires consistency.

The soft claim: copy-and-paste wording

A first claim should be courteous, precise and easy for an accounts payable team to process. It should identify the invoice, the due date, the outstanding amount and the statutory calculation. The following wording can be adapted; it is general information, not legal advice.

Dear [Accounts Payable],

Invoice [number] for [amount] was due on [date]. Our records show that it remains outstanding. Please confirm whether the invoice has been approved and when it will be included in your next payment run.

As this is a commercial debt, we reserve the right to claim statutory interest and fixed compensation under the Late Payment of Commercial Debts (Interest) Act 1998. For the avoidance of doubt, the current calculation is [interest] plus [compensation]. We would prefer to resolve this without adding those sums, and we will not do so if payment is made by [date].

If there is a dispute or a missing document, please tell us today so that we can resolve it.

Yours sincerely, [Name]

That wording does two things. It preserves the relationship by offering a route to payment without the additional sums, and it creates a written record that the statutory remedy has been brought to the customer's attention. It also makes clear that the supplier is not simply making a vague threat.

When to escalate

Set a date, usually seven to fourteen days after the soft claim. If there is no substantive response, send a formal letter before action with an updated interest calculation and a final deadline. If payment still does not arrive, consider Money Claim Online or instruct a solicitor. Do not threaten insolvency proceedings unless you have taken advice; the consequences can be serious if the debt is disputed or the customer is already in a fragile position.

Escalation should be proportionate. A customer with a genuine dispute should be asked to identify the disputed item and pay the undisputed balance. A customer with a cash-flow problem may need a short, documented payment plan. A customer that simply ignores correspondence should face the consequence set out in the terms.

Make it a standard term of trade

The strongest way to normalise the claim is to stop presenting it as an escalation. Add a clause to new contracts and a line to invoice footers stating that statutory interest and compensation may be claimed on late payment. Include the point in the credit application and the onboarding pack. Train sales teams not to apologise for it. Review the ledger monthly so that claims are calculated consistently rather than in a burst of frustration at year-end.

Statutory interest is not a myth, and it is not an act of aggression. It is a default remedy that Parliament provided because late payment damages suppliers. The suppliers who use it well are not the ones who shout loudest. They are the ones who mention it early, calculate it accurately and apply it consistently. That is how a statutory right becomes a commercial norm.