Late payment law for freelancers: charging statutory interest the right way

Late payment law for freelancers: charging statutory interest the right way


 

The law is on your side, if you use it

Freelancers routinely fund their clients' cash flow without meaning to. The invoice goes out, the 30 days pass, and the money drifts in at day 60 or 90 while rent and tax deadlines do not move. Many freelancers accept this as the price of winning work. It does not have to be. The Late Payment of Commercial Debts (Interest) Act 1998 gives every UK business a statutory right to charge interest on overdue commercial debts, and using it properly changes the conversation with slow payers.

What the legislation actually gives you

Three separate rights stack together under the Act:

  • Statutory interest at 8% above the Bank of England base rate, accruing daily from the day after the agreed payment date.
  • Fixed compensation per overdue invoice: £40 for debts up to £999.99, £70 for debts from £1,000 to £9,999.99, and £100 for debts of £10,000 or more.
  • Recovery of reasonable debt collection costs on top, where the fixed compensation does not cover them.

These rights apply to business-to-business contracts, not to consumers, and they apply unless your contract sets its own late-payment terms. Note the hierarchy: if your contract specifies an interest rate for late payment, that contractual rate applies instead of the statutory one, so check your terms before you calculate anything.

When the clock starts ticking

If your contract or invoice states payment terms, interest runs from the day after the payment date. If your paperwork is silent on terms, the law implies a 30-day payment period, and interest runs from day 31. Agreed payment terms cannot stretch beyond 60 days unless the longer period is not grossly unfair to the supplier, a protection aimed at one-sided terms imposed by large buyers. Public authorities are held to 30 days.

One practical condition: the debt must be undisputed and the invoice must be valid. A client genuinely disputing the quality of the work is not a late payer in the eyes of the law, which is another reason to get sign-off on deliverables in writing before invoicing.

How to charge it in practice

Charging statutory interest is an admin task, not a court case. The routine looks like this:

  1. Check your contract first. Confirm there is no contractual interest clause that overrides the statute, and confirm the payment date that was agreed.
  2. Calculate the daily rate. Take the Bank of England base rate in force, add 8%, divide by 365 and multiply by the overdue amount. HMRC and business groups publish worked examples if you want to sense-check the maths.
  3. Add the compensation tier for the invoice value: £40, £70 or £100.
  4. Raise it as a separate line on a fresh invoice or as a standalone interest invoice, referencing the original invoice number and the legislation.
  5. Send it with a calm, factual covering note stating the amount, the rate, and the period it covers.

Keep copies of everything. If the matter ever reaches a county court claim, a clean paper trail of dated invoices and notices makes the claim close to automatic.

Using it without torching the relationship

The fear that stops most freelancers is losing the client. In practice, a graduated approach protects the relationship while making the point:

  • First late payment: a polite reminder that mentions your terms, without charging interest. Many clients simply have sloppy processes.
  • Second time: quote the interest and compensation in the reminder, but offer to waive it if payment arrives within seven days. Most pay at this stage.
  • Repeat offenders: charge it in full, every time, without apology. Clients who learn that lateness has a price either pay on time or reveal themselves as clients you are better off without.

Frame it as policy, not personal: "my standard terms include statutory interest on overdue invoices" lands very differently from an angry email.

Prevention: terms that make the law unnecessary

The cheapest late-payment dispute is the one that never happens. Put written terms in place before work starts, stating payment terms, the interest rate for late payment and the compensation tiers. Ask new clients for a deposit, bill in milestones on longer projects, and consider Direct Debit or card-on-file arrangements for retainer clients. A short credit check on a new client costing a few pounds can save months of chasing later.

Statutory interest exists because Parliament decided that small suppliers should not be free sources of working capital for their customers. Use it as it was intended: calmly, systematically, and in writing. For freelancers who would rather create than chase, outsourcing the ledger keeps invoices, reminders and records in order. Finex Outsourcing is a Global Business Services provider, and its financial accounting outsourcing services give independent professionals proper back-office support. The official guidance on charging interest is at gov.uk.



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