Late payment interest

In the UK you do not need a clause, and your clause may not help

Most people believe two things about charging interest on a late invoice: that you need a term in your contract to do it, and that the term you have decides the rate. In the UK both are wrong, and they are wrong in opposite directions.

That is the UK position specifically, and it is the unusual one. Of the four markets this tool covers, the UK is the outlier with a right built into the statute book. The other three work close to the opposite way, covered further down this page.

The Late Payment of Commercial Debts (Interest) Act 1998 implies the right into every commercial contract. You do not have to have thought about it, written it down or mentioned it when you quoted. The rate is 8% above the Bank of England base rate, as simple interest, running from the day the payment became late.

Then there is a fixed sum on top, which is the part people miss entirely: £40 on a debt up to £999.99, £70 from £1,000 to £9,999.99, and £100 at £10,000 or more. It is per invoice, not per chase, and on a small debt it is most of what the exercise is worth. Chasing a £200 invoice thirty days late earns pennies in interest and £40 in compensation.

And reasonable costs of recovery can be claimed on top of the fixed sum, each time you try to recover it. GOV.UK says so in terms. That is a separate entitlement rather than something the fixed sum is meant to have covered.

The clause in your own terms may be void

This surprises people who thought they had it covered. Section 8(1) of the Act:

Any contract terms are void to the extent that they purport to exclude the right to statutory interest in relation to the debt, unless there is a substantial contractual remedy for late payment of the debt.

So a term in your conditions charging 2% a year does not quietly replace the statutory rate. It may simply be void, with the statutory rate applying instead. And a rate that sounds punitive can still fall short: 12% reads like a serious late fee and is below 8% over a 4% base.

The Act deliberately does not define "substantial", so no page, this one included, can tell you where the line sits. What it can tell you is that the assumption runs the wrong way round: your clause does not automatically beat the statute, and if it is low it may be doing you out of money rather than protecting you.

Outside the UK, the message inverts

This is why the tool asks where you are before it asks anything else. The UK position is unusual, and carrying it abroad would be worse than useless.

• United States. No single federal rule between two businesses. Some states have prompt payment statutes, mostly in construction, and a few override contract terms. The federal Prompt Payment rules govern the government paying its own contractors, not one business paying another.
• Australia. No uniform federal statute. State security of payment legislation gives interest on construction progress payments. Otherwise it is whatever the contract says.
• Canada. Interest is a contractual entitlement that has to be agreed before the debt arises. Without that, the realistic route is statutory pre-judgment interest once you sue, which is usually a low rate.

So in three of the four markets the useful answer is not a number at all. It is this: if your terms do not set a rate, you probably do not have one, and the fix is to put one in before the next job rather than to argue about the last one. The tool says that rather than showing you a figure you cannot claim.

Why it asks for the base rate

Because it moves. Baking a figure into a page that is served as static files would leave it quietly wrong for months at a time, and a wrong rate on a demand letter is worse than no calculator. Look up today's base rate, put it in, and the arithmetic is yours to check.