Late payments are one of the biggest threats to small business cash flow.
If clients consistently pay you late, it can leave you chasing money, covering costs out of your own pocket, and worrying about how to keep things running.
So can you legally charge late payment fees in the UK? And should you?
Here’s a simple guide to help you decide what’s right for your business.
Can a Small Business Charge Late Payment Fees in the UK?
Yes. Under the Late Payment of Commercial Deb22ts (Interest) Act 1998, small businesses in the UK have the legal right to charge interest and claim reasonable debt recovery costs if a client fails to pay on time.
If no other payment terms are agreed, the law allows you to:
- Charge statutory interest at 8% plus the Bank of England base rate
- Add a fixed late payment fee depending on the amount owed:
- Under £1,000: £40
- £1000 to £9,999.99: £70
- £10,000 and over: £100
When Can You Apply These Charges?
You can charge interest and fees from the day after the invoice becomes overdue based on your agreed payment terms.
If your invoice doesn’t state terms, the law assumes a default of 30 days from delivery of goods/services or the invoice date, whichever is later.
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Should You Charge Late Fees?
While you’re legally entitled to, it’s not always a black-and-white decision. Here are some pros and cons:
Pros:
- Encourages prompt payment
- Sends a clear message about professionalism
- Protects your cash flow
Cons:
- May strain client relationships
- Some clients may dispute the fees
- You still have to chase and enforce them
Many small businesses find value in including the right to charge late fees in their terms, even if they don’t always apply them.
It gives you leverage if needed.
How to Include Late Payment Terms on Invoices
If you decide to include late fees, make your terms clear and consistent:
- Add a payment deadline (e.g. “Payment due within 14 days”)
- Include wording such as: “We reserve the right to charge statutory interest (8% above base rate) and late payment fees under the Late Payment of Commercial Debts Act 1998 on overdue invoices.”
Also include these terms in contracts or quotes for full transparency.
Final Thoughts: What’s Best for You and Your Business
Charging late payment fees is your legal right and can help protect your business. But it’s important to balance cash flow protection with client relationships.
If late payments are a recurring issue, it might be time to review your terms, streamline your invoicing, or get support chasing overdue invoices.
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