What the Act does
The Late Payment of Commercial Debts (Interest) Act 1998 is a piece of UK legislation designed to protect businesses from the effects of late payment. It gives businesses the legal right to claim statutory interest and fixed compensation when invoices are not paid on time, and that right applies whether or not it was ever written into the contract.
The Act covers all qualifying commercial debts: invoices between businesses and invoices to public sector bodies. It does not apply to consumer transactions.
What businesses can claim
The Act provides for two separate entitlements on each late invoice.
The first is statutory interest, calculated at 8% above the Bank of England base rate on the value of the unpaid invoice, from the date it became overdue. This runs until the invoice was actually paid, so the longer the delay, the greater the interest that accrued.
The second is fixed compensation, which is owed automatically per invoice, separate from and in addition to the interest. The amount depends on the value of the invoice:
| Invoice value | Fixed compensation |
|---|---|
| Under £1,000 | £40 per invoice |
| £1,000 to £9,999 | £70 per invoice |
| £10,000 or more | £100 per invoice |
Under section 5A(2A) of the Act, businesses may also recover reasonable debt recovery costs where those costs exceed the fixed compensation amount. This can be a material component for insolvency estates with administrative cost exposure, though for most solvent businesses interest and fixed compensation are the primary elements of a claim.
How late payment interest is calculated
The interest rate is fixed at 8 percentage points above the Bank of England base rate. Because the base rate changes over time, the calculation uses the rate in force at the point the debt became overdue. Interest accrues daily from the date payment was due until the date it was actually received.
For businesses with many invoices across several years of public sector contracts, the cumulative total across interest and fixed compensation can be significant, even where individual invoice amounts appear modest.
The 30-day rule for public sector bodies
For invoices to public sector bodies, the statutory interest period cannot be contracted away. Under section 4(2D), read with section 4(2H) of the Act, if a public authority agrees a payment period longer than 30 days, statutory interest still runs from day 30. The longer agreed term does not delay the point at which interest begins to accrue.
This position is stronger than for purely B2B contracts. Under sections 4(2E) and 4(2F), if the parties agree a payment day later than 60 days from the relevant trigger, statutory interest still runs from day 60 — unless the agreed day is not grossly unfair to the supplier (the gross unfairness test sits at section 4(7A)). The default position is the 60-day cap, with grossly unfair as the qualifier that allows departure from it. For public sector suppliers, the 30-day trigger is fixed regardless of what the contract says.
Who it applies to
The Act applies to commercial debts: invoices between businesses, and invoices from businesses to public sector bodies. It does not apply to debts owed by consumers. It also only applies to debts arising after the legislation came into force, with a six-year look-back period for claims in England and Wales. Scotland operates under a five-year prescription period — see our Scottish legislation guide for the specific rules that apply there.
Importantly, businesses do not need to have contracted for these rights, demanded them at the time, or even been aware of them. The entitlement is statutory: it exists by operation of law.
You don't need to pursue this yourself
Late Payment Action purchases the statutory interest and compensation entitlements created by this Act outright from businesses that have supplied the public sector. We pay a fixed, guaranteed sum on completion and take on full responsibility for pursuing the claims. Your involvement ends when you receive payment. There is no ongoing commitment, no cost if you have no claim, and no need to involve your existing clients directly.
