Late Payment of Commercial Debts Act Part 2: How to calculate interest and fixed-fee compensation with worked examples

Part one covers what the Late Payment of Commercial Debts (Interest) Act 1998 does and when it applies. Part two shows exactly how to calculate statutory interest and the fixed-fee compensation—with step-by-step, worked examples you can copy.

The three building blocks

1. Daily interest formula

Daily interest= (Invoice principal ×Statutory rate) / 365​

where Statutory rate = Bank Rate (reference date) + 8%. Interest accrues from the day after due date up to (and including) the day before payment.

2. Fixed-fee compensation (per invoice)

• Up to £999.99 → £40

• £1,000–£9,999.99 → £70

• £10,000+ → £100

3. Reasonable recovery costs
If your reasonable costs exceed the fixed fee, you can claim the difference in addition to (not instead of) the fixed fee. Keep itemised evidence (for example, third-party collection fees, tracing, courier for legal service). If you reach the point where internal reminders are running in circles, read: signs that you need a commercial debt collection agency urgently.

Worked example 1: £800 invoice, 45 days late (no special contract clause)

Scenario

• Principal: £800

• Due date passed 45 days ago

• Reference-date Bank Rate: 4.0% → statutory rate 12.0% (4.0% + 8%)

• Band for fixed fee: £40 (debt < £1,000)

Interest
Daily interest = 800 × 12% ÷ 365 = £0.26
Over 45 days = £11.84 (rounded to nearest penny)

Fixed fee
= £40

Total late-payment charge
= £11.84 + £40 = £51.84 (plus the £800 principal)

For small invoices, the fixed fee dominates. That’s intentional: even when you keep calls professional and ethical, admin time still costs money.

Worked example 2: £7,500 invoice, 75 days late (no special contract clause)

Scenario

• Principal: £7,500

• 75 days late

• Reference-date Bank Rate 4.0% → statutory rate 12.0%

• Fixed-fee band: £70

Interest
Daily interest = 7,500 × 12% ÷ 365 = £2.47
Over 75 days = £185.00 (rounded)

Fixed fee
= £70

Total late-payment charge
= £185.00 + £70 = £255.00 (plus the £7,500 principal)

If engagement is tepid, pair the calculation with a tighter debt collection call script: confirm receipt, ask for the internal approval stage, and secure a date (not a vague “we’ll try”).

Worked example 3: £25,000 invoice, 120 days late (contract silent on interest)

Scenario

• Principal: £25,000

• 120 days late

• Reference-date Bank Rate 4.0% → 12.0% statutory

• Fixed-fee band: £100

Interest
Daily interest = 25,000 × 12% ÷ 365 = £8.22
Over 120 days = £986.40

Fixed fee
= £100

Total late-payment charge
= £986.40 + £100 = £1,086.40 (plus the £25,000 principal)

On larger balances and longer lates, the interest can be material. If a dispute is raised to stall matters, run a tight process—this disputed invoices flowchart shows how to investigate, propose a remedy and keep the account moving.

Frequently asked calculation questions

Which date do I use for Bank Rate?
Use the rate as at 31 December for debts becoming late 1 Jan–30 Jun, and the rate as at 30 June for debts becoming late 1 Jul–31 Dec—then add 8%.

Can I charge after the invoice is paid?
Yes—interest/fees can be claimed even if the overdue invoice has since been settled, up to 6 years; but act promptly to preserve goodwill.

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