How to charge interest on late payments

Charging interest on late payments is an effective way of protecting your business’ cashflow.

UK businesses of all shapes and sizes are suffering due to the country’s late payment culture.

80% of small businesses are paid late, and on average, SMEs are owed £6,142in late payments at any one time.

Being paid late can have serious consequences for businesses. Being left out of pocket can cause cash flow issues, put businesses in debt with their own creditors, and cause them to miss out on business opportunities.

Why charge interest on late payments?

Charging interest on late payments is a good way to reduce the risk of late payments.

The threat of being charged interest can be a good deterrent, encouraging customers to pay on time.

Every business has the statutory right to charge interest on sales to business and public sector customers, it’s up to you if you decide to do so.

How to charge interest

When you begin working with a new client, it’s important to agree clear payment terms on paper from the word go, to ensure that there is no doubt as to when payment is due.

The standard timeframe for making a payment is 30 days.

Interest begins accruing on a payment from the end of the agreed credit period.

According to the law, you have the right to charge interest at the Bank of England base rate, plus 8%.

Other charges

Late payment fee– Businesses are also eligible to claim an additional fixed late payment fee.

The value of this fee depends on the size of the debt. (£40 for debts of less than £1,000, £70 for debts between £1,000 and £10,000 and £100 for debts of £10,000 or more.)

“Reasonable” recovery costs– This fee can be used to claim back the cost of using a debt collection service to recover the debt.


Always consider whether your relationship with a customer is worth a few pounds in interest. Charging interest and other late payment fees may ruin your relationship with a customer, so proceed with caution if you wish to do business with a customer again.

For more advice and help with debt collection, give our team of experts here at Churchill Recovery Solutions a call on 0333 320 0748.