Statutory Interest Is About To Become Mandatory: How To Claim The 8% You Are Owed

The Commercial Payments Bill, introduced to Parliament in May 2026, will make statutory interest on late payments mandatory at 8% above the Bank of England base rate. It is one of the most practical reforms in the government’s wider package to tackle late payment and poor payment practices between businesses.

The Bill is not yet fully in force, and the government has said there will be a lead-in period. It will also not apply retrospectively. However, you do not need to wait for the new law before claiming interest on overdue business-to-business invoices. The right to charge statutory interest already exists under the Late Payment of Commercial Debts Act and the interest and fixed fee compensation it provides.

This article explains what you can claim now, what the Bill is expected to change, how to calculate late payment interest, and how to build it into your credit control process.

Why most SMEs are not claiming what they are owed

The Late Payment of Commercial Debts (Interest) Act 1998 has given businesses the right to charge interest on overdue commercial invoices for more than 25 years. The entitlement is well established, but many SMEs still do not claim it.

The reasons are usually familiar. Some businesses do not know the right exists. Some feel awkward adding charges on top of the unpaid invoice. Others worry that claiming interest will damage the customer relationship.

Those concerns are understandable, but they come at a cost. If a customer pays you late, they are using your cash flow to support theirs. Statutory interest is designed to put a cost on that delay.

If a small business is owed £10,000 and the invoice is paid 60 days late, with the Bank of England base rate at 3.75%, the statutory interest is about £193.15. Add the £100 fixed compensation charge for a debt of £10,000 or more, and the total extra amount owed is about £293.15.

That is money many suppliers are still leaving unclaimed.

What you can claim under the current law

The current late payment rules allow you to claim 3 main elements on qualifying overdue commercial debts.

Statutory interest

The statutory interest rate is 8% above the Bank of England base rate. It is calculated as simple interest, not compound interest, for each day the payment is overdue.

A payment is usually late from the agreed payment date in your contract. If no payment date was agreed, the default position is usually 30 days after the customer receives the invoice, or 30 days after you deliver the goods or provide the service, whichever is later.

This applies to qualifying business-to-business contracts for goods or services. It does not apply in the same way to consumer debts.

Fixed compensation

You can also charge a fixed sum for the cost of recovering a late commercial payment. The amount depends on the value of the debt.

You can usually charge this once for each late payment. Where there are multiple overdue invoices, the compensation position should be considered invoice by invoice, depending on how the payments fall due.

Reasonable recovery costs

If the fixed compensation does not cover your reasonable recovery costs, you may also be able to claim additional reasonable costs. This can include professional recovery costs, legal costs and other direct costs linked to recovering the debt.

This is particularly useful where you use a professional business debt recovery service, because the recovery cost may itself become part of what you pursue from the debtor.

What the Commercial Payments Bill changes

The current law allows parties to agree an alternative contractual remedy for late payment, provided that remedy is substantial. In practice, stronger buyers have sometimes used contract terms to reduce the practical value of statutory interest for smaller suppliers.

The Commercial Payments Bill is intended to change that. The government says it will mandate interest on late payments at 8% above the Bank of England base rate and remove the ability to agree weaker contractual alternatives. It will also introduce a maximum 60-day payment term, with strictly limited exemptions, and new powers for the Small Business Commissioner.

The Bill also includes measures around disputed invoices. The government’s late payment proposals include a 30-day period for raising invoice disputes, designed to stop customers from waiting until payment is due before suddenly challenging an invoice.

In plain terms, the direction of travel is clear: late payment is being made more expensive and harder to justify.

How to calculate what a customer owes

Here is a simple example.

Invoice value: £8,500
Payment terms: 30 days
Days overdue: 75 days
Bank of England base rate: 3.75%
Statutory interest rate: 11.75% per year

Interest = £8,500 x 11.75% ÷ 365 x 75
Interest = about £205.31

Because the invoice value is between £1,000 and £9,999.99, fixed compensation is £70.

Total additional amount owed = £275.31
Total claim = £8,775.31

If you have several overdue invoices, these figures add up quickly. The reclaim debt collection costs page on the Taurus Collections website explains the framework in more detail.

Why claiming interest changes customer behaviour

Late payment has often been treated as free credit. A customer delays, you chase politely, and eventually they pay the original invoice with no real consequence.

Claiming statutory interest changes that. It tells the debtor that delay has a cost. It also signals that you understand your rights and are prepared to enforce them.

This does not mean every overdue invoice needs to become a confrontation. It means your payment terms, reminders and formal demands should be consistent. The guide on 5 ways to get your customers to pay on time puts this into the wider context of better payment behaviour.

How to make the claim in practice

Step 1: Make sure the invoice is correct

A statutory interest claim depends on a valid invoice. Check that the invoice is addressed to the correct legal entity, includes the right details, and states the payment terms clearly. The ultimate checklist for making an invoice that people actually pay is a useful place to start.

Step 2: Track the overdue period

You need to know when the invoice became overdue. This depends on your agreed terms or the default statutory period. Aged debtors reporting that drives action should capture this information across your ledger.

Step 3: Calculate the full amount

Add the principal invoice value, statutory interest to date, and the fixed compensation charge. Use the correct Bank of England base rate for the period you are calculating.

Step 4: Send a formal demand

Set out the amount owed clearly. Reference the Late Payment of Commercial Debts (Interest) Act 1998, state the principal sum, interest, compensation and deadline for payment. A properly drafted statutory demand letter helps move the matter from informal chasing to formal recovery.

Step 5: Keep interest running

Interest continues until the debt is paid. If the matter escalates, make sure your claim reflects the updated amount rather than only the amount due on the date of the first demand.

Common mistakes that reduce recovery

The most common error is claiming interest from the invoice date rather than the due date. Interest normally starts from the overdue date, not the day the invoice was raised.

Another mistake is forgetting the fixed compensation charge. It is simple to claim and can be valuable where you have several overdue invoices.

Be careful with payment plans. If you accept instalments without recording that interest continues on the outstanding balance, you may weaken your position. Read payment plans that do not weaken your legal position before agreeing terms.

Partial payments also need handling properly. If a debtor pays part of the balance, confirm in writing how the payment is being allocated. Handling part and short payments explains why this matters.

Where an invoice is disputed, keep track of interest while the dispute is resolved. The debt dispute resolution process should always factor in what has accrued during the delay.

What if the debtor refuses to pay the interest?

Some debtors pay the invoice but ignore the statutory interest and compensation. You do not have to accept that as the end of the matter.

You can issue a separate demand for the statutory charges, include them in legal proceedings, or instruct a professional debt collection UK agency to pursue the full balance.

Where the debtor may be insolvent, speed matters. Understanding the winding up petition route can help you decide whether stronger action is needed. In other cases, mediation versus litigation for unpaid invoices may help you choose the right next step.

Building interest claims into your process

Statutory interest should not be something you remember only when a relationship has already broken down. It should be part of your standard credit control process.

Add a reference to statutory interest in your payment terms. Include interest and compensation in formal overdue reminders. Track accrued interest in your aged debtor reports. Make sure your team knows when to escalate.

If your current process does not capture this consistently, outsource credit control may give you a more structured approach. For businesses under cash flow pressure, invoice discounting and improving business cash flow may also be worth reviewing alongside recovery action.

If you are unsure whether an account needs urgent escalation, read signs that you need a commercial debt collection agency urgently.

FAQs

Do I need a contract clause to claim statutory interest?

No. The right exists under the 1998 Act for qualifying commercial debts. However, it is still sensible to refer to statutory interest in your payment terms so customers know your position from the start.

Can I claim interest on invoices already overdue?

Yes. The existing law already allows statutory interest on qualifying overdue commercial invoices. You do not need to wait for the Commercial Payments Bill to become law.

What if my customer asks me to waive the interest?

You can decide commercially whether to waive it, but you are not automatically required to do so. Once the new legislation is in force, contractual attempts to exclude or reduce statutory interest are expected to be much less effective.

Can I claim statutory interest on a disputed invoice?

Interest can accrue on overdue qualifying debts. If a dispute is resolved in your favour, the interest that accrued during the delay may form part of the claim. Keep records of the dispute and when it was raised.

Is there a time limit?

The standard limitation period for a simple contract debt in England and Wales is generally 6 years. That does not mean you should wait. The sooner you act, the stronger your practical recovery position usually is.

Can I claim interest from overseas customers?

It depends on the governing law of the contract and where enforcement is needed. If the contract is governed by English law, the 1998 Act may apply. For international debts, take advice before issuing a formal claim.

Start claiming what you are already owed

The mandatory interest provisions in the Commercial Payments Bill are welcome, but they are not a reason to wait. The right to charge 8% above base rate on qualifying overdue commercial invoices already exists.

If you want a professional, documented process for recovering invoice values, statutory interest, fixed compensation and reasonable recovery costs, Taurus Collections is one of the debt collection UK businesses can turn to for support.

Get in touch today to recover the full amount you are entitled to, not just the headline invoice value.