UK late payment interest calculator

The rate

Statutory interest on a late commercial debt is the Bank of England base rate plus 8 percentage points, set by the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 under section 6 of the Act.

The base rate half of that is not the rate today. It is fixed for six months at a time: the rate in force on 30 June governs debts through to 31 December, and the rate in force on 31 December governs debts through to 30 June. Section 4(1) fixes a debt at the rate prevailing at the end of the day payment was due, so a debt keeps the rate it started with even if the Bank of England moves in the meantime. This calculator picks the rate from the due date you enter, and the table below shows every period it knows.

The interest

Section 1(1) makes it simple interest, not compound. It runs from the day after payment was due. The convention, and what this calculator does, is a 365 day year:

amount outstanding × rate ÷ 365 × days outstanding

Interest is charged on the amount actually outstanding each day. Money that reaches you stops earning interest that same day, which is why a part payment splits the calculation into two lines with different balances. The day the money lands is not charged, because on that day the customer no longer owes it.

The fixed sum

Section 5A gives you a fixed sum for each late invoice, on top of the interest, as soon as statutory interest starts to run. It goes by the size of the debt:

• Debt under £1,000: £40
• Debt of £1,000 or more, under £10,000: £70
• Debt of £10,000 or more: £100

It is once per invoice, not once per chase. If your reasonable costs of recovering the debt come to more than the fixed sum, section 5A(2A) lets you claim the difference as well. This calculator does not guess at those costs, so add them yourself if you have them.

Rounding

Each line is rounded to the penny for display, but the total is rounded once from the exact daily figures. With several part payments the displayed lines can therefore add up to a penny more or less than the total. The total is the right number.

The Act covers a contract for the supply of goods or services where both the supplier and the purchaser are acting in the course of a business. Business here includes professions, government departments and public authorities. A few things are outside it: consumer credit agreements, and contracts meant to work as a mortgage, pledge, charge or other security. A contract of employment or apprenticeship is not a supply of goods or services, so it is out too.

Some points worth knowing before you send the charge:

• You do not need a clause in your contract. The right is implied into the contract by section 1(1).
• A contract can set its own remedy for late payment instead, but only if it is a substantial remedy. A term that guts the supplier's right without giving something real back is not enforceable.
• If no payment date was agreed, payment is late 30 days after the customer gets the invoice or after you deliver, whichever is later.
• An agreed payment period can usually be no longer than 60 days between businesses, or 30 days where the customer is a public authority, unless a longer period is expressly agreed and is not grossly unfair to the supplier.
• Interest is calculated on the sum the customer actually owed, so if the invoice included VAT that is part of the debt. No VAT is added to the interest itself.
• You can charge less than you are entitled to, or nothing. Many suppliers calculate the full figure, show it on the statement, and then decide.

The statutory rate applies to debts under English, Welsh, Scottish and Northern Irish law. It is not the rate for a consumer debt, a county court judgment or a debt owed to you by someone outside the UK under foreign law.