Clause library
Late-payment interest clause, explained
A late feeA late fee is an extra charge, or interest, added when an invoice is not paid by the due date.More in the glossary clause sets what is added when a commercial invoice is late — and in the UK a statute already supplies a rate and fixed compensation.
Last updated 28 October 2026
What does a late-payment interest clause do?
When a business pays another business late, the Late Payment of Commercial Debts (Interest) Act 1998 implies statutory interest and a fixed recovery sum, unless the contract provides a substantial remedy instead. Gov.uk states the rate as 8% plus the Bank of England base rate. We name the rate next to payment terms.
What is the statutory interest rate in the UK?
Gov.uk states statutory interest as 8% plus the Bank of England base rate. The 1998 Act lets the rate be set by order; for England, Wales and Northern Ireland that order is 8% over the Bank’s official dealing rate. Scotland has its own rate order. A contract can set its own rate if that is a substantial remedy.
What fixed compensation can you claim?
Once statutory interest begins to run, the supplier is also entitled to a fixed sum: £40 on a debt under £1,000, £70 from £1,000 up to but not including £10,000, and £100 at £10,000 or more, plus reasonable recovery costs not met by that sum. That is s.5A of the 1998 Act, for qualifying commercial debts.
Can the contract set a different rate?
Yes. Many papers name a contractual rate, often a number of percent over base, and a right to pause work. If the contractual remedy is a substantial remedy for late payment, it replaces the statutory scheme. If it is not, the statutory interest and compensation can still apply. Write which you mean. See late fee and our unpaid invoice guide.
Does this apply to consumers?
The 1998 Act is for commercial debts between businesses (and to public authorities). A private individual buying as a consumer is on a different track. Do not paste statutory interest into a consumer wedding or portrait job and assume it bites. For business clients, put the rate in the freelancer agreement or services agreement before you start.
Example wording
Example · our own drafting
The Client will pay each undisputed invoice within [30] days of receipt. If a qualifying commercial debt is paid late, interest accrues at 8% a year above the Bank of England base rate from the due date until payment, and the Supplier may claim the fixed compensation and recovery costs due under the Late Payment of Commercial Debts (Interest) Act 1998. The Supplier may suspend work while any undisputed invoice is more than [14] days overdue.
In Plain English
The client pays within 30 days of getting an undisputed invoice. If a business invoice is late, interest runs at 8% above Bank of England base, and the supplier can also claim the fixed late-payment compensation the 1998 Act sets. If an invoice is more than 14 days late, the supplier can stop work until it is paid.
What should you watch for?
| Point | Watch for | Push for |
|---|---|---|
| Rate | Silence, or a rate copied from a US template. | The statutory scheme, or a named contractual rate that is a substantial remedy. |
| Compensation | Interest only, with no mention of the fixed sum. | A line that keeps s.5A compensation, or a contractual equivalent. |
| Pause | No right to stop work when invoices age. | A suspension right after a named number of days overdue. |
| Disputes | A whole invoice frozen because one line is queried. | Pay the undisputed part; argue the rest. |
| Client type | Statutory interest dropped into a consumer booking. | The 1998 Act for business clients; a different money clause for consumers. |
Which contracts include it?
Lex includes this clause in, among others:
- Freelancer agreement
- Services agreement (master services agreementA master services agreement (MSA) sets the legal terms for an ongoing relationship, with each project then agreed in a separate statement of work.More in the glossary)
- statement of workA statement of work (SOW) is a document that describes the specific work, deliverables, timeline and fees for one project.More in the glossary
What does the law say?
Statutory interest on late payment of commercial debts is set by order under the Late Payment of Commercial Debts (Interest) Act 1998; gov.uk states the rate as 8% plus the Bank of England base rate.
Source: Late Payment of Commercial Debts (Interest) Act 1998, s.6; gov.uk guidanceChecked 7 October 2026Pending lawyer review
Once statutory interest begins to run on a qualifying commercial debt, the supplier is entitled to a fixed sum of £40 for a debt less than £1,000, £70 for a debt of £1,000 or more but less than £10,000, and £100 for a debt of £10,000 or more, plus any reasonable recovery costs not met by that fixed sum.
Source: Late Payment of Commercial Debts (Interest) Act 1998, s.5AChecked 28 October 2026Pending lawyer review
Draft a freelancer agreement with this clause
Free for the other sideLex drafts it in Plain English beside the legal wording. Share one link; both sides agree and sign.
Frequently asked questions
What does a late-payment interest clause mean?
It says what is added when an invoice is paid late. In UK business-to-business deals, the 1998 Act already supplies statutory interest and a fixed compensation sum unless the contract gives a substantial remedy instead.
What is the UK statutory interest rate on late commercial debts?
Gov.uk states it as 8% plus the Bank of England base rate, set under the Late Payment of Commercial Debts (Interest) Act 1998. A contract can name a different rate if that is a substantial remedy.
What fixed compensation can a supplier claim?
Once statutory interest runs, s.5A of the 1998 Act adds £40, £70 or £100 depending on the size of the debt, plus reasonable recovery costs not met by that sum.
Can we agree our own late-payment rate?
Yes. Name it in the contract. If it is a substantial remedy for late payment it replaces the statutory scheme; if it is not, the statutory interest and compensation can still apply.
Does statutory interest apply to a consumer client?
The 1998 Act is for commercial debts. A private individual buying as a consumer is outside that scheme. Write a different money clause for consumer bookings.
Sources
- Late Payment of Commercial Debts (Interest) Act 1998, s.6; gov.uk guidanceChecked 7 October 2026Pending lawyer review
- Late Payment of Commercial Debts (Interest) Act 1998, s.5AChecked 28 October 2026Pending lawyer review
Related
The legal wording governsLast reviewed 28 October 2026Pending lawyer review