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:
Annual interest rate: 12.25%
Daily rate: £5,000 × 12.25% ÷ 365 = £1.68/day
Total interest: £1.68 × 101 days = £169.68
Compensation fee: £70 (for debts £1,000-£9,999.99)
Total late payment charge: £239.68
Using Our Free Calculator
Enter current Bank of England base rate.
Input invoice amount.
Set original due date.
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:
Navigate to Policies → Add New Policy
Select "Statement Interest Charge"
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
Accuracy: Eliminates calculation errors
Consistency: Charges applied uniformly
Time-saving: No manual calculations needed
Compliance: Always uses correct legal rates
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
Start gradually: Use draft mode initially
Set grace periods: Consider 7-14 day buffers
Monitor impact: Track payment behavior changes
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
Check current rate: Bank of England website
Calculate manually: Use our free calculator
Automate: Sign up for Paidnice free trial
Configure: Set up your interest policy
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.