Most people chasing an unpaid invoice ask only for the invoice amount. That leaves money on the table, and it also removes the one thing that makes paying late genuinely expensive for the debtor. Interest and compensation are not a penalty you have to argue for in a commercial debt; in most cases they are an entitlement, provided you calculate them correctly and set them out clearly.

Step 1: Work out which rule applies to your debt

There are two separate routes and they are not interchangeable. If both you and the customer were acting in the course of a business, the Late Payment of Commercial Debts (Interest) Act 1998 applies and you have a statutory right to charge interest and compensation without needing a court's permission. If the debtor is a private individual acting as a consumer, that Act does not apply; instead you would ask the court to award interest under section 69 of the County Courts Act 1984, which is at the court's discretion and is conventionally 8% simple interest. Getting this wrong is the most common mistake, because a consumer debtor can rightly refuse a Late Payment Act charge.

Step 2: Check the payment terms and when the clock starts

Interest runs from the day after payment was due. If you agreed credit terms in writing, use those. If nothing was agreed, the default under the Act is 30 days from whichever is later: the day the customer received the invoice, or the day the goods or services were delivered. Business-to-business terms longer than 60 days are only enforceable if they are not grossly unfair to the supplier. Note the exact date the debt became overdue, because you will need it later in the particulars of claim.

Step 3: Calculate the statutory interest

Under the Late Payment Act, the rate is the Bank of England base rate plus 8%, fixed for six-month periods (the base rate on 31 December applies for the following January to June, and the rate on 30 June applies for July to December). The calculation is simple, not compound: take the debt, multiply by the annual rate, divide by 365, then multiply by the number of days overdue. On a £5,000 invoice at a 12% total rate, the daily interest is roughly £1.64, so 90 days late adds about £147.95. Under the section 69 route for consumer debts, use 8% flat with the same daily method.

Step 4: Add the fixed compensation and recovery costs

The Late Payment Act also entitles you to a fixed sum per unpaid invoice on top of the interest: £40 where the debt is under £1,000, £70 where it is £1,000 to £9,999.99, and £100 where it is £10,000 or more. Each late invoice carries its own fixed sum, so five overdue £600 invoices attract £200 in total, not £40. If your reasonable costs of recovering the debt exceeded that fixed sum, you can claim the difference as well, but you need to be able to evidence what you actually spent.

Step 5: Put the figures in your letter before claim

Set the amounts out as separate lines rather than one total: the principal debt, the interest accrued to the date of the letter, the daily rate that continues to accrue, and the fixed compensation. Say which Act or section you are relying on. A debtor who can check your arithmetic in thirty seconds is far more likely to pay than one facing an unexplained round number, and a clear breakdown carries directly into a claim form if the letter does not work.

Step 6: Carry it through to the claim

If you go on to file through Money Claim Online, the form asks you to state the interest claimed, the basis for it, and the daily rate continuing to accrue up to judgment. Use the same figures you gave in the letter before claim, updated to the filing date. Interest and compensation both count towards the claim value that determines your court fee, so a large accrued interest figure can push you into a higher fee band. Judgment interest after that is a separate matter and is dealt with by the court.

A worked example

You invoiced a limited company £5,000 on 1 March on 30-day terms, so payment fell due on 31 March and interest began running on 1 April. By 30 June the invoice is 90 days overdue. With a base rate of 4%, the statutory rate is 12%, giving a daily figure of £5,000 × 12% ÷ 365 = £1.64. Ninety days of that is £147.95. Because the debt is over £1,000 but under £10,000, you add £70 in fixed compensation. Your letter before claim would therefore ask for £5,217.95, broken out as £5,000 principal, £147.95 interest, and £70 compensation, and state that interest continues to accrue at £1.64 per day.

This guide is general information, not legal advice. Rates change with the Bank of England base rate, and contractual interest terms in a signed agreement may displace the statutory rate. LawClaims is a document preparation tool, not a law firm, and no solicitor-client relationship is formed by using it or reading this page. For a disputed or high-value debt, take advice from a solicitor.

How to Claim Late Payment Interest and Compensation on Unpaid Invoices