How Is My Business Legally Protected From Late Payments in the UK?
Receiving late payments from the public sector puts real pressure on your business. Cash flow suffers, planning becomes harder, and the time spent chasing payment is time taken away from operations. What many businesses don't know is that UK law provides statutory protection against this, including the right to claim compensation and interest on every overdue invoice.
A 2025 study commissioned by the Department for Business and Trade found that late payments cost the UK economy almost £11 billion per year, with UK businesses collectively spending 133 million hours annually chasing overdue invoices.
Source: Department for Business and Trade / London Economics, July 2025
This guide explains how the Late Payment of Commercial Debts (Interest) Act 1998 protects your business and what to do if you have received late payments from a public sector client. For context on the wider procurement landscape, see our guide on the Procurement Act 2023.
What Is the Late Payment of Commercial Debts (Interest) Act 1998?
The Late Payment of Commercial Debts (Interest) Act 1998 is the primary piece of legislation protecting UK businesses from the impact of late payment. It establishes your right to claim statutory interest and fixed compensation on invoices that are not paid on time, and sets out the rules under which those rights apply.
The Act applies to commercial transactions involving the supply of goods or services. It does not cover personal debt, and it applies where your terms of business do not already include a provision for interest on late payments.
How Does the Act Protect Your Business?
Encourages timely payment
The Act requires debtors to pay undisputed invoices within 30 days. Failure to do so gives you the right to charge statutory interest and claim fixed compensation. Public sector bodies and contracting authorities are well aware of the Act, and the existence of clear statutory consequences for late payment provides a meaningful incentive to pay on time.
Statutory right to compensation
The Act gives your business an automatic right to compensation for each invoice paid late. The fixed compensation rates are:
In addition, statutory interest accrues daily at 8% above the Bank of England base rate, from the day after the payment due date until the full amount is paid.
These rates are set by statute, which means there is no negotiation involved. The entitlement is either present or it is not, based on the facts of the payment.
What's my claim worth?Protects against disputes
Late payment can give rise to disputes that consume time and damage working relationships. The Act reduces the scope for dispute by setting out payment terms clearly in statute. Where a contracting authority has failed to pay within 30 days, the Act is unambiguous about the consequences.
If your situation does involve a dispute, LPA handles it entirely once we have purchased your claim. Your business is not the party making demands, and your client relationship remains yours to manage.
Supports financial management
Late payments make it difficult to forecast, plan, and reinvest. The compensation and interest you are entitled to under the Act can help offset the financial impact of delayed income, including any administrative costs incurred in connection with the overdue payment. Receiving a guaranteed lump sum from LPA on completion also allows you to plan with certainty, rather than waiting on an uncertain outcome.
What to Do If You Have Received Late Payments
Many businesses investigate their late payment entitlement, conclude the process looks complicated, and do nothing. As a result, they leave a legitimate financial entitlement unclaimed.
LPA exists to remove that barrier. We buy your statutory late payment rights outright and pay you a fixed guaranteed sum, typically within 24 hours of receiving signed documents. You do not need to produce invoices, navigate legislation, or manage any ongoing process.
Your entitlement is also time-limited. In England, Wales, and Northern Ireland, the limitation period is six years from the date payment was received. In Scotland, it is five years. Find out more about the time limits that apply
Importantly, the right survives the settlement of the invoice. Find out about claiming on paid invoices
Step 1: Tell us your company details. That's all we need to get started. (Takes minutes)
Step 2: We check our records to assess whether you have a claim. (No input required from you)
Step 3: If you have a claim, we offer you a fixed, guaranteed purchase price. (Fixed amount, agreed upfront)
Step 4: We send our standard-form assignment documents for signature and ask you to confirm your bank details. (Straightforward documentation)
Step 5: Once in receipt of the signed documents and bank details, we make payment within 24 hours and your involvement is over. We then take full responsibility for the claims. (Immediate payment, zero ongoing obligations)
You can find answers to common questions, including how client notification works and what happens if a claim is disputed, on our Business FAQs page.
Next Steps
The Late Payment of Commercial Debts (Interest) Act 1998 gives your business clear, enforceable rights. If a public sector client has paid you outside the 30-day period at any point in the last six years (or five years in Scotland), those rights may still be live.
Am I eligible to claim?Frequently Asked Questions
What does the Late Payment of Commercial Debts (Interest) Act 1998 do?
The Act gives UK businesses the right to charge statutory interest and claim fixed compensation on invoices that are not paid within 30 days by public sector clients. It applies to the commercial supply of goods and services and sets out the rates and procedures for making a claim.
What interest rate applies to late payments under UK law?
Statutory interest is calculated at 8% above the Bank of England base rate, accruing daily from the day after payment was due to the date it was actually received.
How much compensation can I claim under the Late Payment Act?
Fixed compensation is £40 per invoice for debts under £1,000, £70 for debts between £1,000 and £9,999.99, and £100 for debts of £10,000 or more. Statutory interest is calculated separately on top of this amount.
Does the Late Payment Act apply to public sector contracts?
Yes. Public bodies and contracting authorities are subject to the Act and must pay undisputed invoices within 30 days. The Act applies regardless of whether a longer payment period has been agreed contractually for public sector clients.
Do I need a formal contract to benefit from the Late Payment Act?
No. The Act provides statutory protection regardless of whether a formal contract exists, provided the transaction involves the commercial supply of goods or services.
