Late payment costs freelancers billions every year. Beyond the immediate cash flow impact, chasing overdue invoices takes time and energy away from billable work. Charging late payment interest doesn't just recover lost money — it creates an incentive for clients to pay on time. Here's how to do it legally and professionally.
UK: The Late Payment of Commercial Debts Act
UK freelancers working with business clients have a significant advantage: the Late Payment of Commercial Debts (Interest) Act 1998 gives you the automatic statutory right to charge interest on overdue B2B invoices, even if your contract doesn't mention it.
What you can claim:
- Interest: 8% above the Bank of England base rate, calculated daily from the day after the due date until the date of actual payment
- Fixed compensation: £40 for debts under £1,000; £70 for debts between £1,000 and £9,999; £100 for debts of £10,000 or more (per invoice)
- Reasonable recovery costs: Any additional costs incurred in recovering the debt beyond the fixed compensation
The statutory rate applies unless your contract specifies a different (typically higher) rate. You can only claim statutory interest against business clients — consumer clients are subject to different rules.
How to Calculate UK Late Payment Interest
The formula: Invoice amount × (BoE base rate + 8%) ÷ 365 × number of days late
Example: An invoice for £2,000 is 45 days overdue. The BoE base rate is 4.5%, so the statutory rate is 12.5% per annum.
Interest = £2,000 × 0.125 ÷ 365 × 45 = £30.82
Plus fixed compensation: £70 (debt between £1,000 and £9,999)
Total additional charge: £100.82
Use our Late Payment Calculator to compute this automatically.
US: Contract-Based Late Payment Interest
In the United States, there is no single federal equivalent of the UK Late Payment Act for private commercial debts. Instead, your right to charge interest depends on your contract and state law:
- If your contract specifies a late payment interest rate, that rate is enforceable (subject to state usury limits)
- If your contract is silent on interest, some states allow interest at a statutory rate; others require contractual agreement
- Common contractual rates: 1.5% per month (18% per annum) or 2% per month (24% per annum)
- State usury limits: most states cap interest rates for commercial transactions — check your state's limit before specifying a rate
The practical implication: always include a late payment interest clause in your US freelance contracts. Something like: "Invoices unpaid after the due date will accrue interest at 1.5% per month (18% per annum) from the due date until payment in full."
Including the Clause in Your Contract and Invoices
For maximum enforceability, include your late payment terms in two places:
- In your contract: "Invoices unpaid after the due date will accrue interest at [rate] per annum from the due date. UK clients: statutory interest also applies under the Late Payment of Commercial Debts (Interest) Act 1998."
- On every invoice: A footer line such as: "Late payment interest charged at [rate] per annum from the due date. UK: statutory interest may also apply."
This means the client can never claim they were unaware that late payment would attract interest.
How to Actually Claim It
When a client pays late:
- Issue a supplementary invoice for the interest and (in the UK) compensation — reference the original invoice number
- Calculate interest from the day after the original due date to the actual payment date
- Add the appropriate fixed compensation (UK)
- Send with a covering letter explaining the calculation
Many freelancers calculate the interest they are owed but waive it for first-time late payers in exchange for prompt payment going forward. For habitual late payers, enforce it fully.
Using Late Payment Interest as a Deterrent
The mere existence of a late payment interest clause changes client behaviour. When clients know that paying 30 days late will cost them an additional 1.5%, they prioritize your invoice over others. Research consistently shows that freelancers with explicit late payment clauses get paid significantly faster than those without.
Don't frame it as a penalty — frame it as a standard business term. "We apply standard late payment interest in accordance with the Late Payment of Commercial Debts Act / our standard terms" is professional language that most clients accept without pushback.
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Calculate Interest →Frequently Asked Questions
Can freelancers legally charge interest on late invoices?
Yes. In the UK, the Late Payment of Commercial Debts Act gives freelancers the automatic right to charge 8% above BoE base rate on overdue B2B invoices, plus compensation. In the US, you can charge interest if your contract includes a late payment clause.
What is the UK late payment interest rate?
Under the Late Payment Act, the rate is 8% above the Bank of England base rate. If the BoE rate is 4.5%, the statutory rate is 12.5% per annum. You can charge a higher contractual rate if specified in your contract.
What compensation can UK freelancers claim on late invoices?
In addition to interest, you can claim: £40 for debts under £1,000; £70 for debts between £1,000 and £9,999; £100 for debts of £10,000 or more. This is per invoice.
How do I add late payment interest to an invoice in the US?
Include a late payment clause in your contract (typically 1.5-2% per month). Reference this on your invoice. When a client pays late, issue a revised invoice with the original amount plus accrued interest calculated from the original due date.
Will charging late payment interest damage my client relationships?
In practice, most freelancers use the clause as a deterrent. Having it in your contract makes clients aware late payment has a cost. When you enforce it with habitual late payers, it often prompts faster payment in future. Most professional clients accept late payment interest as a normal business term.