Can you charge customers for late invoice payments?

Almost two-thirds of invoices sent by UK small businesses are paid late, according to research conducted by FreeAgent in 2025. Official government statistics show that late payments cost the UK economy an astonishing £11bn each year. You might be wondering if you can claw back any of the costs you’ve incurred from late payments. The good news is, you might be able to charge late-paying customers interest and debt recovery costs on their unpaid invoices.  

But first you need to know the rules. Here’s a rundown of what you need to know about charging customers for paying your business late. 

When can you charge for late payment of an invoice?

Before you charge a customer interest on an unpaid invoice, you should get in touch with them to let them know that the payment is overdue. Mistakes happen - and the customer might be grateful for the reminder! 

Worried about how to have that conversation? These handy templates can help.

If they still haven’t paid and you do decide to apply a charge, there are a few things to consider.

When is a payment defined as late?

If you specify a payment date on your invoice, the payment will be considered late if it reaches you after this date. If you do not specify a payment date on your invoice, the payment is defined as being late 30 days after either:

• the customer gets the invoice
• you deliver the goods or provide the service (if this is later)

Is the customer an individual or a business?

You can’t charge interest or late-payment fees to individuals (i.e. members of the general public) unless you have clearly communicated the intention to do so in your payment terms. The interest rate or any fees you intend to charge for late payment should be clearly indicated to your customers when they decide to buy your product or use your service.

If your customer is another business (this includes sole traders), you can specify an interest rate for late payments in your contract with them. Alternatively, you can charge statutory interest (more on what this is below) to business customers who pay an invoice late. However, you cannot charge statutory interest if you’ve agreed on a different rate of interest on the contract. 

The information below all applies to situations when your customer is another business.

How much can you charge for late payment?

Under the Late Payment of Commercial Debts (Interest) Act 1998, most UK businesses are entitled to charge statutory interest and fixed debt recovery costs, whether or not their contract mentions it. Below, we explain how to work those out.

Note: You may explicitly agree different charges in your contract, but be aware that excessive late payment fees on top of interest may be legally challenged.

How much interest should you charge? 

The statutory rate of interest (the amount you are legally entitled to charge) is set at 8%, plus the Bank of England (BoE) base rate. At the time of publication, the BoE base rate is 3.75%, which means you are entitled to charge 11.75%. This rate can change regularly so make sure you check it before calculating.

If a customer owes you £1,000 and the statutory rate is 11.75%, here’s how you calculate how much you can charge them in interest.

1. Calculate the annual statutory interest. In this example: £1,000 x 0.1175 = £117.50. 
2. Divide by 365 to get the daily interest. In this example: 117.50 / 365 = 0.32 (rounded to the nearest penny).
3. Multiply by the number of days by which the payment is late, to get your interest total. For example, if the payment in this example was 100 days late, the total you can charge would be £32 (100 x £0.32 = £32).

If you choose to charge a customer interest on an overdue invoice, we’d suggest issuing a new invoice for the value of the interest only, leaving the previous overdue invoice intact so that the income and VAT stay recorded at their original date.

Charging debt recovery costs on late payments

You can also choose to charge a fixed sum for the cost of recovering a late payment. These charges are usually referred to as ‘debt recovery costs’ and you can charge them in addition to adding interest to an unpaid invoice.

The amount you’re allowed to charge depends on the amount your customer owes you. These amounts are set by late payment legislation and you can only charge your customer once for each late payment (so, for example, you can only charge £40 once on a bill of £800, even if you have to chase that invoice multiple times). 

You can see what you’re allowed to charge in the table below.

See who owes you what - at a glance

Ready to get paid faster? FreeAgent’s Invoice Timeline instantly shows the status of recent invoices and lets you see what’s been paid, what’s due and what’s overdue. Take a 30-day free trial of FreeAgent to try it for yourself.

19th October 2026