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Claiming Late Payment Interest and Compensation

When you can claim?

You can claim Late Payment Interest, Compensation and Costs if:

•  You have supplied goods and services
•  Your buyer bought for business purposes
•  The contract is not a consumer credit agreement
•  The contract does not contain a provision for interest on overdue invoices (or any other substantial remedy for non payment)

How much interest can you claim?

•  You can claim interest at 8% over Bank of England Base Rate (at the previous 31st December or 30th June).
•  You can claim interest on invoices that were not paid within the credit period but have since been paid. Interest can be claimed for the period starting with the date the invoice should have been paid and ending with the date it was actually paid.

•  You have up to 6 years to claim the interest.

How much compensation can you claim?

You can claim compensation for every invoice that was not paid within the credit period. You can claim compensation even if the invoice has now been paid. Remember, you have up to 6 years to claim the compensation!

The amount of compensation you can claim is:-

Invoice Amount


Up to £999.99

£40 per invoice

£1000 - £9,999.99

£70 per invoice

Over £10,000.00

£100 per invoice






Reasonable Costs

You can claim compensation whatever your collection costs are. However, if your reasonable costs of recovering the debt come to more than the compensation, you can claim this as well.
It looks as if you can claim the cost to your business of your credit control procedures as well as claiming any costs incurred with Debt Collection Agencies or lawyers.
It is highly likely that in small claims track cases the court will view reasonable legal costs as being the equivalent of the limited fixed costs which are allowed. You will have more chance of getting a reasonable level of costs if you have a contractual clause allowing you to recover indemnity costs. You should take advice on including this in your terms of business.

Inform Your Customers You Will Be Claiming Late Payment Interest, Compensation And Costs

You don't have to tell your customers that you will claim Late Payment interest, compensation or costs if they fail to pay on time before they have actually breached your payment terms. However, it may be beneficial for your cash flow to tell them in advance of your intentions, should payment be made late. You could put warnings to this effect on your invoices; your statements and in your terms of business.

Change Your Terms Of Business To Claim Late Payment Interest, Compensation And Costs

You are not entitled to late payment interest, compensation or costs if your terms of business already provide for interest on overdue invoices. So, you may want to change your terms of business and rely on the Late Payment legislation. If you do, make sure your customers know.
You should:-
•  update all documents on which your Terms and Conditions appear.
•  circulate your customers with the revised Terms and Conditions.
•  advise your customers when the revised Terms and Conditions will come into effect.
N.B. Existing contracts will continue to be governed by the Terms and Conditions which applied at the time they were entered into.
Occasionally your customer’s terms of business may be incorporated into the contract and provide for a very low rate of interest on over due amounts. In this event, the court may take the view that the interest rate is not substantial enough and that the Late Payment legislation applies. In that case you would be able to claim interest, compensation and costs under the ACT, rather than just the low rate in the contract.


How To Claim Late Payment Interest, Compensation And Costs

As soon as a payment is overdue you can, if you wish, claim the compensation and, in due course, interest. You can claim the reasonable costs of recovering the debt as and when they are incurred. You don't issue an invoice for the interest, compensation or costs. You just write and tell your customer the amount due.
When you claim interest, compensation or costs, it would be helpful to tell your customer :-
•  How much is due for interest, compensation and costs
•  What it is owed for e.g. give the invoice number for the principal debt
•  How payment should be made:
  • To whom
  • By what date
  • To what address and
  • By what method
However, you don't need to have sent any previous warning letter to your customer to claim interest, compensation or costs in an LPD or proceedings.
If you can't send an LPD because your contract contains a provision for interest, you could claim contractual interest in your LBA.

What Happens If There's An Argument Over What's Due?

Sometimes there is genuine doubt about whether an invoice is for the correct amount. Where the customer admits that a certain amount is payable, the court expect them to pay the amount they agree is due and not wait until all the issues have been dealt with. You are entitled to late payment interest, compensation and costs on amounts the customer admitted were due but just didn't pay until all queries were resolved.
Sometimes an invoice depends on a calculation. For example, it may be based on timesheets and hourly or daily rates. If the invoice is wrong but the customer has the information to work out the correct amount, the customer is expected to do the calculation and pay accordingly. You will be entitled to late payment interest, compensation and costs if they don't.
If there is real doubt about the amount of the invoice, or a real dispute as to whether the money is due, you will not be entitled to late payment interest, compensation and costs until the position has been clarified.
10_tips_cover_resized.pngIs chasing late payments getting
in the way of your other business
Our handy free guide will provide you with 10 tips and
insights to help you reduce those issues.

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