Late payment law: how freelancers can charge interest under UK rules

Late payment law: how freelancers can charge interest under UK rules

Charging a client interest feels like something only big companies do. Most freelancers would rather write off the delay than have the awkward conversation. But UK law hands you the right automatically, the calculation is simple, and in practice you will rarely need to use it, because stating it clearly is usually enough to get paid. Here is how the mechanics work.

The right you already have

The Late Payment of Commercial Debts (Interest) Act 1998 covers business-to-business debts, which includes a freelancer invoicing a limited company or another sole trader. It does not cover money owed by private consumers. Under the Act you have an implied right to interest on overdue invoices, even if your contract says nothing about it. The statutory rate is 8 per cent above the Bank of England base rate, deliberately set high so that paying late costs more than borrowing. On top of the interest, the Act gives you fixed compensation for each 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. The compensation is per invoice, not per client, and it sits alongside the interest, not instead of it.

How the interest is actually calculated

Interest runs daily from the day after the payment deadline until the day the money arrives. Take a £3,500 invoice paid 45 days late. With the base rate at 5 per cent, the statutory rate is 13 per cent. The daily interest is £3,500 times 13 per cent divided by 365, which is about £1.25 a day. Over 45 days that is roughly £56, plus the £70 fixed compensation for an invoice in that band, making £126 in total. The arithmetic is not the point. The point is that you can state a specific, lawful number instead of a vague complaint about lateness. A reminder that says "statutory interest of £56 plus £70 compensation is now accruing on invoice 1042" is a different conversation from "please pay soon".

Put the right in your terms and on your invoices

The law gives you the right whether or not you mention it, but mentioning it is what makes it useful. Agree payment terms in writing before the work starts: the number of days, the deposit, and a line stating that overdue invoices attract statutory interest and compensation under the Late Payment Act. Then repeat the key line on the invoice itself, near the payment terms and bank details. If no terms are agreed, the law implies 30 days, which is a decent fallback, but agreed terms are stronger, and shorter terms are enforceable if they are not grossly unfair. Terms invented after the invoice is already overdue carry no weight, so do this at the quoting stage, not the chasing stage. Freelancers who want the whole credit-control process handled professionally can lean on Finex Outsourcing, whose financial accounting services keep invoicing, terms, and debtor follow-up consistent.

Having the conversation without losing the client

Most freelancers fear that mentioning interest will poison the relationship. In practice, the sequence that works is calm and factual. First, the friendly reminder, because most late payment is disorganisation. Then a firmer reminder showing the running total of interest and compensation, framed as information rather than a threat. The great majority of clients pay at this stage, and no interest ever changes hands. The right to charge it did the work. If payment still does not come, add the accrued amount to the balance in writing and set a final deadline. Keep every step polite and documented. Clients who leave over a lawful, clearly stated term were going to be difficult about money anyway. Clients who stay now understand exactly how you do business.

When the debt still will not move

For stubborn debts, a formal letter before action giving 14 days resolves a surprising number of cases, because it signals that the next step is real. In England and Wales the small claims track handles claims up to £10,000, and the statutory interest and compensation can be included in the claim amount. Before any of that, check whether the invoice is genuinely in dispute: a client who believes the work was defective is not a late payer, they are a dispute, and interest talk will not resolve it. Separate the two, fix genuine disputes fast, and apply the law firmly to the rest.

You do not need anyone's permission to charge what the law allows. Put it in your terms, put it on your invoices, and mention it early. That is how freelancers turn a legal right into actually getting paid.