How is my business legally protected from late payments of invoices

The Late Payment of Commercial Debts (Interest) Act 1998 provides legal protection for businesses experiencing late payment of invoices. It sets out the rules for the payment of interest and your rights to compensation for late payment of commercial debts.

WHN director and commercial debt recovery specialist, Sara Beaumont, discusses the benefits of this Act and provides information on the current rates of compensation and interest relating to the late payment of invoices.

There are several features and benefits to this Act that are outlined below:

  • Encourages prompt payment

One of the primary benefits of the Act is that it encourages prompt payment of invoices. The law requires debtors to pay their invoices within 30 days unless a different payment date has been agreed. If payment is not made within the agreed timeframe, the business is entitled to charge interest and compensation.

  • Provides a statutory right to interest and compensation

The Act provides a statutory right to interest and compensation for late payment. This means businesses do not have to negotiate or argue for payment. The law sets out the payment terms and the amount of interest and compensation that is due, making it easier for businesses to enforce their payment rights.

  • Protects businesses from late payment

Late payment of invoices can have a significant impact on a business’s cash flow, especially for small and medium-sized enterprises. The Act provides protection for businesses by ensuring that they receive payment on time. This, in turn, allows businesses to manage their cash flow more effectively and reduces the risk of insolvency.

  • Helps businesses manage their finances

By providing a statutory right to interest and compensation, the Act helps businesses manage their finances more effectively. Businesses can use the interest and compensation payments to cover the costs associated with late payment, such as administrative costs, debt collection fees and legal fees.

  • Helps businesses avoid disputes

Late payment of invoices can lead to disputes between businesses. The Act helps to avoid disputes by setting out clear payment terms and providing a statutory right to interest and compensation. Businesses are less likely to argue over payment terms and are more likely to resolve any disputes that arise more quickly.

Late payment rates

As of April 2023, the current rate for late payment compensation is fixed at £40 for debts up to £1,000, It increases to £70 for debts between £1,000 and £10,000, and to £100 for debts over £10,000.

Additionally, the current statutory interest rate for late payment is eight per cent plus the Bank of England base rate.

The interest rate is calculated from the day after the payment due date and is charged on the outstanding debt until the debt is paid in full.

In conclusion, the Late Payment of Commercial Debts (Interest) Act 1998 provides significant benefits for businesses. It encourages prompt payment, provides a statutory right to interest and compensation, protects businesses from late payment, helps businesses manage their finances, and helps businesses avoid disputes.

It is important for businesses to understand that the provisions of the Act, including the current rates of compensation and interest, are designed to help businesses effectively manage their cash flow and protect themselves from the negative impacts of late payment.

Sara Beaumont specialises in resolving commercial disputes at all levels – both before and after the issue of court proceedings. She is also experienced in the use of alternative dispute resolution, particularly mediation. If you have a problem dealing with the late payments of invoices from your customers, please contact Sara on 0161 761 4611 or email