Statutory late payment interest: what it is and when to use it
If a client has not paid your invoice by the due date, you are likely entitled to charge interest, not as a penalty you invent, but as a right established in law. Most commercial economies have passed legislation specifically to protect suppliers from slow-paying customers. Understanding how this works gives you a legitimate tool to recover what you are owed and to discourage future delays.
What is statutory late payment interest?
Statutory late payment interest is interest that accrues automatically on an overdue commercial invoice, at a rate set by law. You do not need a court order to be entitled to it, and in most jurisdictions you do not need to have agreed to it in your contract in advance; the law imposes it by default on qualifying business-to-business transactions.
The rate is typically expressed as a percentage above a reference rate, for example, the Bank of England base rate plus 8% in the UK, or the ECB reference rate plus 8% for B2B transactions in the EU. These rates are deliberately set high to give creditors a meaningful remedy and to make slow payment genuinely costly for debtors.
Why does it exist?
Late payment is one of the most persistent problems facing freelancers and small businesses. Research consistently shows that smaller suppliers are paid later than large ones, and that late payment is a leading cause of cash-flow crises and insolvencies. Late payment legislation exists to rebalance this power dynamic: it gives smaller creditors a legal right that they can invoke without needing to sue, and it imposes a financial cost on late payers that is large enough to change behaviour.
The EU Late Payment Directive, the UK Late Payment of Commercial Debts Act, and equivalent legislation in other jurisdictions all share the same goal: make it financially rational to pay on time.
How to calculate late payment interest
The standard calculation is simple interest, not compound interest. The formula is:
Interest = Invoice amount × (Annual rate / 100) × (Days overdue / 365)
For example, a £5,000 invoice that is 60 days overdue under the UK Act (currently 13.25% per annum) accrues approximately £108.90 in interest. This calculator does this arithmetic for you and updates the figure in real time as you adjust the inputs.
The "days overdue" figure is derived from the invoice date you enter and today's date. You do not need to count days manually. The clock typically starts from the agreed payment date in the contract, or 30 days after delivery of the invoice if no date was agreed.
When is it worth invoking?
The legal right exists whether you use it or not. Most freelancers do not claim it, partly because they do not know they can, and partly because they worry it will damage the client relationship. A few things to consider:
- With repeat clients you want to keep: a polite reminder that references the statutory rate (without actually adding it to the invoice) is often enough to prompt payment. The mention of the legislation signals you know your rights.
- With clients who are persistently slow: adding statutory interest to subsequent invoices changes the economics of delay. If they pay 60 days late on a £10,000 invoice, that is an extra £219 they owe you. Over several invoices, this becomes meaningful.
- When pursuing a debt through the courts: statutory interest strengthens your claim and is typically awarded alongside the principal debt.
- As a deterrent in new contracts: including a clause that references the applicable legislation in your payment terms sets expectations before any dispute arises.
Country-by-country overview
United Kingdom
The Late Payment of Commercial Debts (Interest) Act 1998 gives B2B creditors the right to charge interest at 8% above the Bank of England base rate. At a base rate of 5.25%, this gives a statutory rate of 13.25% per annum. The Act also allows you to claim a fixed debt recovery charge (£40 for debts under £1,000, £70 for debts between £1,000 and £10,000, £100 for larger debts) on top of the interest.
Germany / EU
The EU Late Payment Directive (2011/7/EU) requires member states to allow B2B creditors to charge interest at 8 percentage points above the ECB reference rate. In Germany, this is implemented through §§ 288, 247 BGB. At an ECB reference rate of 4%, the statutory rate is 12% per annum. The rate is reviewed and published by the ECB twice a year.
Australia
Australia does not have a single federal late payment statute equivalent to the UK Act. Penalty interest is typically governed by the contract or by state-level legislation. The calculator uses 10% per annum as a reasonable commercial default, but your actual entitlement depends on your contract terms, the relevant state, and the nature of the transaction. Check your written agreement first.
India
For MSME (Micro, Small and Medium Enterprise) suppliers, the MSMED Act 2006 provides a right to interest at three times the bank rate notified by the Reserve Bank of India. In practice, this has broadly tracked an 18% per annum rate for commercial purposes. For other contracts, the applicable rate depends on the agreement or a court determination. MSME registration is required to invoke the Act.
Canada
Canada has no single federal statutory late payment rate for commercial debts. Rates are governed by provincial legislation and the terms of individual contracts. British Columbia, Ontario, and Quebec each have their own rules. A 5% per annum estimate is used in this calculator as a conservative starting point. Always check your province's Court Order Interest Act or equivalent legislation for the current rate.
United States
The United States has no federal statutory late payment rate for general commercial debts. State rates range from 6% (for example, New York) to 18% per annum (some states allow contractual rates up to this ceiling). Prompt Payment Acts apply to federal government contracts but not to private B2B transactions. For private contracts, check your state's pre-judgment interest statute and your contract terms.
Practical steps before you send a demand
- Confirm the invoice is genuinely overdue (check the agreed payment date, not just the invoice date).
- Verify the current statutory rate for your country. Base rates change. The figures in this calculator are illustrative fallbacks, not live rates.
- Send a written notice that references the applicable legislation and specifies the interest amount. This creates a paper trail if further action becomes necessary.
- Keep a record of the invoice, the payment terms, any previous reminders, and the demand itself.
- If the debt remains unpaid after a reasonable period, consider using a debt recovery service, mediation, or small claims court depending on the amount and jurisdiction.
Disclaimer: The rates and rules described above are provided for general information only and do not constitute legal advice. Statutory rates change, and the applicable rules depend on the specific facts of your situation. Consult a solicitor, lawyer, or legal adviser before taking formal recovery action.