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Can I Charge Interest if My Customer Doesn't Pay Me on Time?

Updated: Jun 25

Can I Charge Interest if My Customer Doesn't Pay Me on Time?
Can I Charge Interest if My Customer Doesn't Pay Me on Time?


In the intricate dance of business transactions, maintaining a steady cash flow is crucial for the smooth functioning of any enterprise. It's not uncommon, however, to encounter situations where clients don't pay invoices on time.

As accountants, we understand the challenges this can pose for your business.

In this blog post, we'll explore the important question: "Can I charge interest if my customer doesn't pay me on time?" Let's delve into the legalities and considerations surrounding this issue.

Understanding the Late Payment of Commercial Debts Regulations

The UK government recognizes the significance of timely payments in business transactions and has established the Late Payment of Commercial Debts (Interest) Act 1998. This legislation allows businesses to claim statutory interest and compensation for the costs incurred due to late payments. However, the application of this law is subject to certain criteria.

Qualifying Debts

To invoke the Late Payment Act, the debt must qualify as a "commercial debt." This includes transactions for the supply of goods and services. It's important to note that this regulation may not apply to consumer transactions.

Eligibility for Interest and Compensation

If your customer fails to pay your invoice on time, you have the right to charge interest on the overdue amount. The interest rate is composed of the Bank of England base rate plus 8%. Additionally, you can claim compensation for the costs incurred due to late payment. This compensation varies depending on the size of the debt, ranging from £40 to £100 per invoice.

Providing Clear Payment Terms

While the legislation grants you the right to charge interest and compensation, it's essential to establish clear payment terms with your clients from the outset. Including these terms in your contracts and invoices ensures that your clients are aware of the potential consequences of late payment. Open communication about expectations can prevent misunderstandings and contribute to a healthy working relationship.

Remaining Approachable and Client-Focused

Positioning yourself as an expert in the realm of accountancy involves not only understanding the legalities but also fostering positive client relationships. While the law provides a framework for addressing late payments, it's worth considering the context of each situation. Sometimes, extenuating circumstances can lead to delays in payment. Maintaining open lines of communication and approaching these discussions with empathy can set you apart as a reliable and understanding partner for your clients.


In the intricate tapestry of business transactions, late payments can be a challenge. The Late Payment of Commercial Debts (Interest) Act 1998 empowers you to charge interest and claim compensation for overdue invoices.

By adhering to this legislation and fostering clear communication with your clients, you can position your accountancy firm as both experts and partners in navigating the intricacies of business finance.

Remember, the goal is not just to recover late payments, but to build lasting relationships built on trust and understanding.

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