The Late Payment of Commercial Debts (Interest) Act 1998 Explained

When a business client ignores your invoice, you hold substantial statutory power under UK law. The 1998 Act was passed by Parliament specifically to protect freelancers and small businesses from unfair credit terms imposed by larger corporate entities.

1. The 30-Day Default Rule

Under section 4 of the 1998 Act, if your contract does not specify a payment term, the statutory default payment deadline is 30 calendar days from the date the invoice or goods/services are received.

2. Statutory Interest Rate: 8% + Base Rate

Interest starts accruing automatically the day after the invoice becomes overdue. The statutory rate is 8.0% plus the Bank of England reference rate (fixed every 6 months). At current rates, this amounts to 13.0% per annum, accruing daily until the debt is satisfied.

3. Mandatory Fixed Compensation (s.5A)

You are entitled to add a fixed statutory compensation fee to each overdue invoice without needing to prove actual administrative cost:

• £40 for unpaid invoices under £1,000
• £70 for unpaid invoices from £1,000 to £9,999.99
• £100 for unpaid invoices of £10,000 or more

4. Unfair Contract Terms (Anti-Avoidance)

Large clients cannot force you to sign away your statutory late payment rights unless their contract provides a "substantial contractual remedy" that is fair and reasonable. Blanket clauses waiving interest are void under section 8 of the Act.