Every free calculator uses the wrong rate
Statutory interest on a late commercial debt is 8% over the Bank of England base rate. That part everybody gets right.
Which base rate is where it falls apart, and it falls apart everywhere. The free calculators pre-fill today's. The Act does not use today's.
The Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 fixes it precisely. Interest starting between 1 July and 31 December uses the rate in force on the 30 June immediately before. Interest starting between 1 January and 30 Juneuses the rate in force on the 31 December immediately before.
And then it stays there. The rate is fixed for the life of that debt, however long the argument runs afterwards.
What that does to a real number
Take a debt that fell overdue in March 2022. The reference date is 31 December 2021, when the base rate was 0.25%. So the statutory rate on that debt is 8.25%, and it is still 8.25% today.
A calculator using today's base rate would tell you 11.75%. That is an overstatement of more than forty per cent, on a figure you are about to put in a letter, addressed to somebody who has every incentive to check it.
There is a counter-intuitive consequence worth knowing: older debts often accrue more slowly than newer ones. A 2022 debt at 8.25% is growing more slowly than a 2024 debt at 13.25%, because rates were low when the older one went bad. That is the opposite of what anybody assumes.
The question to answer before any of this
Do your own terms and conditions set a rate of interest?
If they do, statutory interest is not available to you. gov.uk is blunt about it: you cannot claim statutory interest if there is a different rate of interest in a contract. Your letter should cite your contract, not the Act.
This tool asks that first, before it calculates anything, because the alternative is producing a confident figure under the wrong Act and putting your name at the bottom of it. It is also worth comparing the two while you are there: a contract rate below base plus 8% is quietly costing you money on every late invoice, and that is a terms-and-conditions job rather than a letter one.
The fixed sum almost nobody claims
Section 5A gives you a fixed sum on top of the interest, and it is separate from it:
- Debt under £1,000: £40
- £1,000 to under £10,000: £70
- £10,000 or more: £100
It is per qualifying debt, which means per invoice rather than once per customer. If the same customer is sitting on five late invoices, that is five fixed sums.
And there is a second limb people miss entirely: if your reasonable costs of recovering the debt exceed the fixed sum, you are entitled to the difference on top. The fixed sum is a floor, not a cap.
Why this is a sequence and not one letter
The Small Business Commissioner already gives away the bare interest number, free and with no login. A standalone calculator has nothing to add.
What nobody gives away is the escalation. Most businesses send three versions of "just chasing this", get nowhere, and then jump straight to a solicitor. To the customer that reads as a bluff three times followed by an overreaction, and the jump is expensive.
Five stages, each doing a different job:
- Before it is due. A courtesy note. No figures, no threat, and one useful question: is there anything you need before this can be paid? Most late payments start as a missing purchase order number.
- Day one overdue. Assume it was missed, because it usually was. The figures appear here for the first time, stated as facts rather than warnings.
- Seven days. A formal request. Asks for any dispute in writing, which either resolves it or removes the excuse.
- Fourteen days. Records that nothing has been disputed and nothing proposed, and invites an instalment plan, because a written arrangement both sides keep is a better outcome than court for everybody.
- Final notice. States what happens next and when, with no new threats added.
What a final notice is not
It is not a Letter of Claim, and the difference cuts both ways depending on who owes you.
If your debtor is an individual or a sole trader, the Pre-Action Protocol for Debt Claims applies. You must send a proper Letter of Claim with the information sheet, reply form and financial statement, and then wait 30 days. Skipping it risks cost sanctions even when you win.
If your debtor is a limited company, the protocol does not apply at all. Plenty of businesses wait a needless month anyway because they read advice written for the other situation.
Common questions
What interest can I charge on a late invoice?
Under the Late Payment of Commercial Debts (Interest) Act 1998, 8% a year over the Bank of England base rate, on a business-to-business debt. You do not need a clause in your contract to claim it: the right is implied into every qualifying commercial contract. The one thing that removes it is having written your own rate into your terms, because you cannot claim statutory interest where a contract sets a different rate.
Which base rate do I use?
Not today's, and this is where every free calculator goes wrong. The 2002 Order fixes it: interest starting between 1 July and 31 December uses the base rate in force on the 30 June immediately before, and interest starting between 1 January and 30 June uses the rate in force on the 31 December immediately before. It is then fixed for the life of that debt. A debt that went overdue in March 2022 carries 8.25%, because the base rate on 31 December 2021 was 0.25%, and it still carries 8.25% today.
How much does that actually change things?
A lot, on an old debt. That March 2022 example is 8.25%. A calculator pre-filled with today's base rate would tell you 11.75%, which overstates the interest by more than forty per cent. On a long-running debt that is a real number in a letter you are sending to somebody who may well check it, and being visibly wrong on your own figures is the last thing you want when you are the one demanding money.
What is the fixed sum and why has nobody heard of it?
Section 5A of the same Act gives you a fixed sum on top of the interest: £40 for a debt under £1,000, £70 from £1,000 to under £10,000, and £100 at £10,000 or more. It is per qualifying debt, which means per invoice, not once per customer. Five late invoices from the same customer is five fixed sums. And if your reasonable costs of recovering the debt come to more than the fixed sum, you are entitled to the difference on top of it.
Should I mention interest in the first letter?
Yes, and calmly. The common pattern is three rounds of "just chasing this" followed by a sudden solicitor, which reads as a bluff for three letters and then an overreaction. Interest and the fixed sum stated plainly in the first reminder, and repeated in each one after, is what makes a final notice credible when it arrives. You are not threatening anybody by telling them what the law already says.
Is a final notice the same as a letter before claim?
No, and the difference matters in both directions. If your debtor is an individual or a sole trader, the Pre-Action Protocol for Debt Claims applies and you must send a proper Letter of Claim with an information sheet, reply form and financial statement, then wait 30 days. Skip that and you risk cost sanctions. If your debtor is a limited company the protocol does not apply at all, and waiting an extra 30 days is a month you gave away for nothing.
Do I lose the interest if I only ask for the invoice?
No. The entitlement arises automatically once the debt is late and it does not expire because you did not mention it in a reminder. You can claim it later, including in proceedings. But asking for it from the start changes the conversation: a customer who knows the debt is growing at a stated amount per day has a reason to deal with it this week rather than next month.