Late Payment Legislation UK: Your Rights as a Freelancer

The Late Payment of Commercial Debts (Interest) Act 1998 is the primary legislation protecting UK freelancers and small businesses from late payment. It gives you the statutory right to charge interest and claim compensation when a business client pays late — even if your contract doesn't mention it.

The Act applies to all commercial transactions where both parties are acting in the course of business. This means it covers freelancer-to-business invoices, but not invoices to private individuals for personal services. If you're invoicing a limited company, partnership, or sole trader for business purposes, you're covered.

Key points of the Act:

• You can charge statutory interest on overdue invoices at 8% above the Bank of England base rate
• You can claim a fixed compensation amount of £40, £70, or £100 depending on the debt size
• These rights exist automatically — you don't need to include them in your contract (though you should)
• A contract term that tries to remove these rights is void if it's not a "substantial remedy" for late payment

The Act was supplemented by the Late Payment of Commercial Debts Regulations 2013, which implemented the EU Late Payment Directive and strengthened protections. Even post-Brexit, these regulations remain part of UK law.

Under the Act, you can charge interest at 8% per year above the Bank of England base rate. As of early 2026, with the base rate at 4.5%, that means a statutory interest rate of 12.5% per year on overdue amounts.

Interest starts accruing the day after the payment due date. If your invoice says "Net 30" and you issued it on 1 March, payment is due by 31 March. Interest begins on 1 April. If no payment terms were agreed, the default is 30 days after the client receives the invoice or the goods/services — whichever is later.

Here's how to calculate it:

1. Find the annual interest rate: Bank of England base rate + 8%
2. Calculate the daily rate: annual rate ÷ 365
3. Multiply by the outstanding amount and the number of overdue days

Example: A £2,000 invoice is 45 days overdue. Base rate is 4.5%, so statutory rate is 12.5%. Daily rate = 12.5% ÷ 365 = 0.0342%. Interest = £2,000 × 0.000342 × 45 = £30.82.

You can use our late payment calculator to work this out instantly. Include the interest calculation on your chaser invoice so the client can see exactly how the figure was reached.

On top of statutory interest, you're entitled to a fixed compensation payment for the inconvenience of chasing late payment. The amount depends on the size of the debt:

• £40 — for debts up to £999.99
• £70 — for debts from £1,000 to £9,999.99
• £100 — for debts of £10,000 or more

This compensation is per invoice, not per payment reminder. So if a single £500 invoice is late, you can claim £40. If you sent three separate invoices of £500 each, you can claim £40 on each — £120 total.

The compensation is designed to cover your costs of chasing the debt — time spent writing emails, making calls, and dealing with the admin. If your actual costs of recovering the debt exceed the fixed compensation amount (for example, if you've had to involve a solicitor), you can claim reasonable recovery costs on top.

In practice, many freelancers mention the fixed compensation in their payment terms as a deterrent. A line like "Late payments are subject to statutory interest at 8% above base rate plus fixed compensation of £40–£100 under the Late Payment of Commercial Debts Act 1998" signals that you know your rights — and that's often enough to ensure prompt payment.

Claiming your statutory rights is straightforward. You don't need a solicitor or any formal legal process — you simply add the charges to a new invoice or a revised version of the overdue one.

Step 1: Send a formal reminder. Before adding charges, send a clear payment reminder referencing the overdue invoice. Give the client a reasonable deadline — 7 days is standard. Mention that you'll be entitled to add statutory interest and compensation if payment isn't received.

Step 2: Issue a supplementary invoice. If the deadline passes, create a new invoice itemising the statutory interest (calculated to date) and the fixed compensation amount. Reference the original invoice number and explain the legal basis — the Late Payment of Commercial Debts (Interest) Act 1998.

Step 3: Continue accruing interest. Interest continues to accrue daily until the debt is paid in full. If the client takes another month to pay after your supplementary invoice, recalculate and update the amount.

Step 4: Escalate if needed. If the client still won't pay, you can take the case to small claims court. The statutory interest and compensation will be included in your claim, and courts routinely award these amounts because they're clearly defined in law.

One important note: you cannot waive your statutory right to interest after the debt has become overdue. Any agreement to waive it is only valid if it was agreed before the debt became due and provides a "substantial remedy" for late payment.

Knowing your legal rights is important, but preventing late payment is always better than enforcing remedies after the fact. Here are practical steps that reduce late payment significantly:

• Use clear payment terms. State Net 14 or Net 30 on every invoice. Shorter terms mean faster payment — see our guide on invoice payment terms.
• Invoice promptly. Send your invoice the day the work is delivered. Every day you delay invoicing is a day added to your payment timeline.
• Take deposits. For new clients or large projects, request 25–50% upfront. This proves the client is serious and improves your cash flow. See our guide on getting paid upfront.
• Include late payment terms on your invoice. A visible note about statutory interest and compensation acts as a deterrent.
• Use a written contract. A clear freelance contract that specifies payment terms, late payment consequences, and scope of work is your strongest protection.
• Offer easy payment methods. If clients can pay by card or direct debit, they're less likely to delay. Include a payment link on your invoice where possible.

The freelancers who get paid fastest are the ones who make it easy to pay and awkward not to. A professional process — prompt invoicing, clear terms, friendly reminders — handles 90% of late payment before it happens.

Beyond the Late Payment Act, several other pieces of legislation are relevant to freelancers chasing unpaid invoices:

The Limitation Act 1980 sets the deadline for bringing a claim. For simple contract debts (including unpaid invoices), you have 6 years from the date the payment became due. After that, the debt becomes statute-barred and you lose the right to pursue it through the courts. Don't sit on unpaid invoices for years — act within a reasonable timeframe.

The Companies Act 2006 requires limited companies to include certain information on invoices and business correspondence, including their registered company name and number. If your client is a limited company that's ignoring your invoices, you can look them up on Companies House to find their registered address for formal correspondence — or to check their financial health before deciding whether to pursue the debt.

The Prompt Payment Code is a voluntary code managed by the Small Business Commissioner. Signatories commit to paying 95% of invoices within 30 days. While it's not legally binding, if your client is a signatory and regularly pays late, you can report them. Large companies that breach the code risk being named and shamed publicly.

If a client owes you money and is a limited company, you can also issue a statutory demand (for debts over £750). This is a formal notice that, if unpaid after 21 days, allows you to petition for the company's winding up. It's a nuclear option — but the threat alone often produces immediate payment.