Can You Charge a Late Payment Fee on an Unpaid Invoice? A UK Guide

You have sent three reminders. The first was friendly, the second widened the circle to accounts payable, the third was firm and asked for a date. None were answered. The work was delivered, the invoice was correct, and the money is still not there.

At that point a reasonable question surfaces: can you add something to the balance? Most people assume that depends entirely on their contract, and that without a late payment clause they have no option. For UK business-to-business invoices, that is not the case. There are two routes to a late payment charge, and the second applies whether or not you agreed anything in advance. It comes from the Late Payment of Commercial Debts (Interest) Act 1998, which most freelancers and small agencies have never heard of.

This guide is written for UK businesses invoicing other UK businesses; consumers are covered by a different regime. What you can actually claim depends on your contract, your invoice terms, where you and your client operate, and the facts of the case, so check before you rely on any of it. This is general information, not legal advice.

Two routes to a late payment fee

The first route is contractual. If your contract, terms of business, or accepted quote states a late payment charge, and the client agreed to those terms before the work began, you can generally rely on the rate you wrote down. This is the route people think of first, and it fails most often, because the clause either does not exist or was never actually agreed.

The second is statutory. Where a business supplies goods or services to another business and payment is late, the Act implies a right to interest and to fixed compensation into the contract. You do not need a clause, the client's agreement, or a note on the invoice.

The two routes do not stack. A contractual remedy generally takes the place of the statutory right, provided it is a substantial one — a token rate written in specifically to shut out the Act is unlikely to survive a challenge. If your clause is silent on interest, or there is no clause, the statutory route is the one available to you.

Can I charge interest on a late invoice with no prior agreement?

Under the statutory route, yes, for qualifying B2B debts. Two separate amounts are available.

The first is interest at 8% above the Bank of England base rate. The applicable base rate is fixed twice a year rather than moving with each rate decision: the rate in force on 31 December applies to debts that become late between 1 January and 30 June, and the rate in force on 30 June applies to debts that become late between 1 July and 31 December. That reference rate then holds for the whole of the debt, even if the Bank moves the base rate meanwhile.

The base rate in force on 30 June 2026 was 3.75%, giving a statutory rate of 11.75% a year for commercial debts that became late between 1 July and 31 December 2026. It is simple interest, not compound.

Interest runs from the day after payment was due, which is the date your contract sets. Where nothing was agreed, a default period applies, generally counted from the later of delivery and receipt of the invoice. Check that start date against your own paperwork before quoting a figure.

The fixed compensation of £40, £70 or £100

Separately from interest, the Act provides a fixed sum for the cost of recovering a late commercial debt. It is set by the size of the debt:

• Debts under £1,000 — £40.
• Debts of £1,000 up to £9,999.99 — £70.
• Debts of £10,000 or more — £100.

The sum applies per invoice, not per client, so four overdue invoices are a different calculation from one large one. If your reasonable costs of recovering the debt come to more than the fixed sum — instructing a solicitor or a debt recovery firm, for example — the Act allows you to claim the difference on top. Your own time chasing is not usually recoverable that way, so for most freelancers the fixed sum is the whole of it.

Contractual late payment terms and the 2% per month rate

If you would rather set your own rate, the common convention for UK B2B terms is 2% per month on the outstanding balance, sometimes written as 1.5%. Rates above that attract argument, and the further you go the more likely a client is to test the clause rather than pay it.

The important part is the unit. The charge must run per period — per month, per week, or per day — tied to how long the money has been outstanding. It must not run per reminder.

Why a fee that grows every time you chase is unenforceable

This is the mistake worth correcting before anything else. A clause that adds, say, £50 each time you send a chaser is not a late payment charge at all. It is a charge for your own administrative activity, and it grows because of something you chose to do rather than anything the client did.

English law will not enforce a contractual charge that operates as a penalty. The question is broadly whether the sum is out of all proportion to your legitimate interest in being paid on time. Interest at a defined rate over a defined period passes that test comfortably: it reflects the cost of being out of the money, and it is arithmetic anyone can check. A fee that escalates because you sent another email does not, because nothing about the client's default changed between your second reminder and your third.

So a per-reminder clause is worth less than nothing. It is unlikely to be enforced, and quoting it makes your correspondence look improvised at the moment you most want it to look considered. Write the clause per period and it holds.

Worked example: a £5,000 invoice, 60 days overdue

Take a £5,000 invoice with 30-day terms, now 60 days past its due date.

Statutory route. At 11.75% a year, £5,000 accrues £587.50 over a full year, or £1.61 a day. Over 60 days that is £96.58 in interest. The debt sits in the middle band, so fixed compensation adds £70. The total additional claim is £166.58, and the balance becomes £5,166.58. Every further day adds another £1.61.

Contractual route at 2% per month. Two full months at 2% of £5,000 is £100 a month, so £200. If the clause accrues daily rather than monthly, 2% a month is roughly 24% a year, or about £3.29 a day — £197.26 over the same 60 days.

Two things follow. The contractual rate is roughly double the statutory one here, but it only exists if you agreed it in advance. And the £70 is a larger share of the statutory total than the interest is — on smaller and shorter overdue invoices, the fixed sum usually is the claim.

What charging interest actually changes

Be honest about the mechanism. Interest rarely persuades a client who has decided not to pay you. It is not a lever against bad faith, and it does not conjure money into a business that does not have any.

What it changes is order. A finance function paying suppliers in whatever sequence is convenient is choosing between debts that all cost the same to defer. A debt that grows costs something to defer, and one with a documented daily figure attached costs something visible. That moves it up the queue, ahead of the invoices that will still be exactly the same size next month.

The effect is real and modest, and the signal it produces is worth as much: a client who queries the interest is engaging with the debt, and a client who ignores it has told you the reminder stage is over. See how to recover an overdue invoice for where the charge fits into the wider escalation process.

Wording to put on your next invoice

The contractual route does nothing for the invoice already outstanding. It helps with the next one. Terms have to be agreed before the work begins, so the place for this is your contract or terms of business, with the invoice repeating it rather than introducing it.

If you want a contractual rate:

Payment is due within 30 days of the invoice date. Interest is payable on any overdue amount at 2% per month, or part month, from the day after the due date until payment is received in full, together with reasonable costs of recovery.

If you would rather rely on the statutory position and simply make the client aware of it:

Payment is due within 30 days of the invoice date. Overdue amounts are subject to statutory interest and fixed compensation under the Late Payment of Commercial Debts (Interest) Act 1998.

Adapt either to your own terms. Whether a clause is incorporated into your agreement depends on how your terms were presented and accepted, so check that before you rely on it.

When interest is not enough

Interest is a nudge, not a remedy. If the invoice is still unpaid after you have raised it, the next steps have nothing to do with the fee. Depending on what your agreement allows, that may mean pausing work in progress, withholding a deliverable, or declining to assign or licence the intellectual property in unpaid work. Where it applies, that last one is usually the strongest practical lever a freelancer has, and it is worth knowing whether your contract gives it to you before you need it.

Beyond that sit the formal options: a Letter Before Action following the pre-action protocol, a claim through Money Claim Online for smaller sums, or — for an undisputed debt owed by a company — a statutory demand, an insolvency step with its own thresholds and its own risks if the debt turns out to be disputed. Each deserves proper advice before you start, and cost, time, and the likelihood of recovery matter more than the principle.

Common late fee mistakes

• Adding a fee that was never agreed. A charge invented at the chasing stage is not a contractual term. The statutory route may still be open to you; the invented fee is not.
• Charging per reminder rather than per period. A fee that grows because you sent another email reads as a penalty and is unlikely to be enforceable.
• Applying it to a consumer. The Act covers business-to-business debts, and citing it against a consumer undermines everything else in the message.
• Forgetting the fixed compensation. On a small invoice the £40 or £70 is usually worth more than the interest, and it is the part people leave out.
• Compounding the interest. Statutory interest is simple, and adding interest to interest invites a challenge to the whole calculation.
• Announcing it in the first reminder. Interest raised on day two turns an oversight into a confrontation. It belongs at the firm reminder stage or later.
• Threatening a charge you will not apply. A figure you quote and then quietly drop teaches the client that your deadlines are decorative.

Charging late fees with Duesteer

Duesteer is an app for iPhone and iPad that turns invoice recovery into a guided workflow. When you add an invoice, you can record the payment terms that go with it, including any late payment clause you agreed with that client. The terms are then attached to the invoice from the start rather than half-remembered at the point you need them.

Timing matters as much as the terms. Duesteer shows where each invoice sits in the recovery process, so a late payment charge surfaces as something to consider at the firm reminder or final notice stage rather than in the first friendly nudge. When a follow-up is due, the app helps you prepare a message suited to that stage, and you review and send it through your own mail app. Duesteer does not calculate statutory interest for you, does not provide legal advice, and does not send messages or collect payments on your behalf.

The recovery history stays attached to the invoice — every reminder, dispute, and missed payment commitment, with dates — and can be exported as a PDF. That is the document you want in front of you if the conversation moves to a Letter Before Action or a claim, and the dates in it are what you need to work out the period your interest runs over. Duesteer is free for up to two invoices; see the pricing page for the Premium plan.

Final takeaway

You can usually charge something on a late UK B2B invoice, and if you never wrote a late payment clause you are not out of options: statutory interest at 8% over base rate and fixed compensation of £40, £70 or £100 apply without any prior agreement. Check your contract first, because a substantial contractual remedy generally takes the place of the statutory one.

Expect the charge to change the order in which you are paid rather than whether you are paid. Write the clause per period rather than per reminder, raise it at the firm reminder stage rather than the first, and quote a figure you have actually calculated. Then treat it as one step in the process, not the end of it.