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🎥 How to automatically calculate Statutory Interest in the UK

How to use Dynamic interest with the Bank of England rate

Denym avatar
Written by Denym
Updated over 3 weeks ago

This guide explains your legal rights for charging late payment fees in the UK and how to automate these calculations with Paidnice.

Late Payment of Commercial Debts Act 1998

Under UK law, businesses can charge two types of fees for late B2B payments:

1. Statutory Interest

Rate: 8% + Bank of England base rate (per annum)


Example calculation (May 2025):

  • Bank of England base rate: 4.25%

  • Statutory addition: 8%

  • Total annual rate: 12.25%

2. Recovery Cost Compensation

Fixed fees based on debt amount:

Debt Amount

Compensation Fee

Calculate it

Up to £999.99

£40

£1,000 - £9,999.99

£70

£10,000 and above

£100

Important: Interest and fees can be claimed from the first day a payment becomes overdue.

Manual Calculation Example

For a £5,000 invoice that's 101 days overdue:

  1. Annual interest rate: 12.25%

  2. Daily rate: £5,000 × 12.25% ÷ 365 = £1.68/day

  3. Total interest: £1.68 × 101 days = £169.68

  4. Compensation fee: £70 (for debts £1,000-£9,999.99)

  5. Total late payment charge: £239.68

Using Our Free Calculator

  1. Enter current Bank of England base rate.

  2. Input invoice amount.

  3. Set original due date.

  4. Calculate total fees owed.

The calculator automatically:

  • Adds the statutory 8%

  • Determines correct compensation tier

  • Shows daily interest accumulation

Automating with Paidnice

Key Features

Automatic Rate Updates

  • Paidnice pulls the current Bank of England base rate automatically.

  • No manual updates needed when rates change.

  • Always compliant with current legislation.

Statement Interest Charge Policy

Setup steps:

  1. Navigate to Policies → Add New Policy

  2. Select "Statement Interest Charge"

  3. Configure:

    • Rate: Bank of England base + 8%

    • Schedule: 1st or last day of month

    • Grace period: Optional 7-day buffer

    • Start date: When to begin calculations

Flexible Options

  • Draft mode: Review charges before sending

  • Auto-apply: Fully automated monthly charging

  • Email notifications: Include or exclude customer notifications

  • Accounting integration: Auto-sync with Xero/QuickBooks

Benefits of Automation

  1. Accuracy: Eliminates calculation errors

  2. Consistency: Charges applied uniformly

  3. Time-saving: No manual calculations needed

  4. Compliance: Always uses correct legal rates

  5. Audit trail: Complete record of all charges

Best Practices

Communication

  • Include late payment terms in initial contracts

  • Reference the Late Payment Act on invoices

  • Send warning before first interest charge

Implementation

  1. Start gradually: Use draft mode initially

  2. Set grace periods: Consider 7-14 day buffers

  3. Monitor impact: Track payment behavior changes

  4. Be consistent: Apply policies uniformly

Customer Relations

  • Explain statutory rights professionally

  • Offer payment plans before enforcement

  • Document all communications

  • Consider waiving first-time fees

Common Questions

Q: Can I charge more than statutory rates? A: Only if agreed in your original contract terms.

Q: Do these rules apply to B2C transactions? A: No, the Late Payment Act covers B2B transactions only.

Q: Can I charge interest on interest? A: No, interest applies to the original debt amount only.

Q: When should I start charging? A: You're legally entitled from day one overdue, but many businesses allow a grace period.

Calculation Settings in Paidnice

Recommended Configuration

  • Interest calculation: Daily pro-rata

  • Compound interest: No (simple interest only)

  • Minimum charge: Set to £10 to avoid tiny charges

  • Maximum charge: Optional cap for customer relations

Advanced Options

  • Exclude specific customers: Use tags

  • Variable grace periods: By customer group

  • Seasonal adjustments: Pause during holidays

  • Bulk reversals: Easy fee removal if needed

Legal Considerations

Always ensure:

  • Clear payment terms in contracts

  • Proper invoice dating

  • Accurate record keeping

  • Fair application of charges

For complex situations, consult legal counsel to ensure full compliance.

Getting Started

  1. Check current rate: Bank of England website

  2. Calculate manually: Use our free calculator

  3. Automate: Sign up for Paidnice free trial

  4. Configure: Set up your interest policy

  5. Monitor: Track effectiveness via dashboard

Need help setting up automated late fees? Contact our support team at [email protected] for assistance with UK-specific configurations.

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