UK freelancers have some of the strongest late payment protections in the world, thanks to the Late Payment of Commercial Debts (Interest) Act 1998. Yet many freelancers don't know their rights, or feel too uncomfortable to enforce them. This guide explains exactly what the law says and how to use it.
The Late Payment of Commercial Debts Act 1998
This Act gives businesses — including sole traders and freelancers — the automatic right to charge interest on overdue B2B (business-to-business) debts. It applies to commercial contracts for the supply of goods or services between two businesses.
The key features are:
- Automatic right to interest: You don't need to include an interest clause in your contract — the right arises automatically by law.
- Statutory interest rate: 8% above the Bank of England base rate per year. As of 2025, this means approximately 8.25% total (base rate + 8%).
- Fixed compensation: In addition to interest, you're entitled to a fixed sum per invoice: £40 for debts under £1,000, £70 for debts of £1,000–£9,999, and £100 for debts of £10,000 or more.
- Debt recovery costs: You can also claim reasonable debt recovery costs if the fixed compensation doesn't cover your actual costs.
When Does Interest Start Accruing?
Interest starts accruing the day after the payment was due. If your contract specifies a payment date (e.g., 30 days after invoice), interest begins the day after that date. If no payment date is specified, the statutory default is 30 days after the later of:
- The date you delivered the goods or completed the services, or
- The date the client received your invoice
What Payment Terms Apply?
The Act requires payment terms to be "reasonable." The default is 30 days for public sector contracts. For private sector (B2B) contracts, the default is also 30 days unless the parties agree otherwise in the contract — but agreed terms cannot be "grossly unfair."
If a client tries to impose payment terms of 120 days or more, this may be considered grossly unfair and unenforceable under the Act. The courts have the power to override unfair contract terms.
Calculating Your Entitlement
Here's the formula for statutory interest:
Daily Interest = (Invoice Amount × Interest Rate) ÷ 365
For example: A £3,000 invoice overdue for 45 days at 8.25% annual rate:
- Daily rate: £3,000 × 8.25% ÷ 365 = £0.68 per day
- 45 days' interest: £0.68 × 45 = £30.49
- Fixed compensation: £70 (debt of £1,000–£9,999)
- Total additional claim: £100.49
Use our Late Payment Interest Calculator to calculate this instantly.
Does the Act Apply to All Contracts?
The Act applies to commercial contracts between businesses. It does not apply to:
- Consumer contracts (B2C)
- Contracts where the purchaser is a consumer (private individual)
- Employment contracts
- Some financial services contracts
As a sole trader or limited company freelancer providing services to another business, the Act almost certainly applies to your contracts.
Enforcing Your Rights
1. Send a Formal Late Payment Notice
Once an invoice is overdue, send a letter or email stating: the original invoice amount, the due date, the number of days it's now overdue, the total statutory interest accrued to date, the fixed compensation amount, and a deadline to pay (typically 7–14 days).
2. County Court
For amounts up to £10,000, you can use the County Court Money Claims Centre (MCOL) online service to issue a claim. Filing fees range from £25 to £455 depending on the claim amount. If the client doesn't respond within 14 days, you can request a default judgment.
3. Small Claims Track
For amounts up to £10,000 in England and Wales (£5,000 in Scotland, £3,000 in Northern Ireland), the small claims track is informal, cheap, and designed for non-lawyers. Legal costs are generally not recoverable in small claims.
4. Statutory Demand
For debts over £750, you can serve a formal statutory demand. If the client doesn't pay within 21 days and can't dispute the debt, you can apply for a winding-up order (against companies) or bankruptcy petition (against individuals). This is a powerful threat that often prompts payment.
Your Contract Is Still Your Best Protection
While the Act provides a safety net, a well-drafted contract with clear payment terms, a deposit requirement, and your own contractual interest clause (often at a higher rate than statutory) gives you even stronger footing. Use our Freelance Contract Generator to create one.
Calculate Your UK Late Payment Interest
Find out exactly how much statutory interest and compensation you can claim.
Calculate Now →Frequently Asked Questions
What is the Late Payment of Commercial Debts Act?
The Late Payment of Commercial Debts (Interest) Act 1998 gives UK businesses, including sole traders and freelancers, the automatic right to charge interest on overdue B2B invoices at 8% above the Bank of England base rate.
How much interest can I charge on a late invoice in the UK?
The statutory rate is 8% per annum above the Bank of England base rate — approximately 8.25% total in 2025. You can also claim fixed compensation: £40 for debts under £1,000, £70 for £1,000–£9,999, and £100 for £10,000 or more.
Does UK late payment law apply to sole traders?
Yes. The Act applies to any business supplying goods or services to another business, including sole traders and freelancers. It does not apply to consumer (B2C) contracts.
Do I need to include a late payment clause in my contract?
No. The right to statutory interest arises automatically under the Act, even without a contract clause. However, including an explicit clause (often at a higher rate) strengthens your position and makes your intentions clear from the outset.
What is Money Claim Online (MCOL)?
MCOL is the UK's online service for making court claims up to £10,000. You file your claim, pay a fee (£25–£455 depending on amount), and the court notifies the defendant. If they don't respond within 14 days, you can request a default judgment in your favour.