Late Payment of Commercial Debts (Interest) Act 1998
UK statute setting statutory interest and compensation for late payment of commercial debts; supplements public sector prompt payment expectations.
Definition
The Late Payment of Commercial Debts (Interest) Act 1998 is the UK statute setting statutory interest and compensation for late payment of commercial debts. The Act applies to business-to-business contracts (including supplier-to-public-sector contracts) and entitles suppliers to charge statutory interest plus a fixed compensation per late invoice when payment is overdue. The Act provides a backstop against late payment but is rarely relied on in practice: public sector buyers operate under PPN 03 prompt payment expectations and increasingly under Procurement Act 2023 30-day mandatory payment terms.
How it works in practice
The Act sets statutory interest at 8 percent above the Bank of England base rate plus fixed compensation per invoice (£40 / £70 / £100 depending on debt size). Suppliers can charge this without prior agreement when payment is late. The Act applies regardless of contract terms; clauses purporting to override the statutory entitlement are void. In practice few suppliers invoice statutory interest on public sector payments because of relationship considerations and the modest amounts involved on individual invoices. But the Act provides a backstop. For systemic late payment problems, suppliers can use the Small Business Commissioner complaint mechanism; for individual disputes the County Court small claims procedure applies. Public sector procurement increasingly addresses late payment through prompt payment expectations (PPN 03 requiring 95 percent of supply chain invoices within 30 days) and statutory contract terms (PA 2023 30-day payment with cascading obligations through the supply chain). The Procurement Act 2023 substantially strengthens the prompt payment environment compared with the pre-existing late payment statute; the statute remains relevant as a backstop and for non-public-sector commercial relationships.
Common questions
What statutory interest can I charge on late payments?
8 percent above Bank of England base rate plus fixed compensation per invoice (£40 for debts under £1,000, £70 for £1,000-£10,000, £100 for above £10,000). The entitlement applies automatically when payment is late; you do not need to have agreed it in the contract.
Is it worth invoicing late payment interest on public sector contracts?
For individual late invoices the amount is usually modest and the relationship cost can outweigh the recovery. For systemic late payment problems with a specific buyer the statutory interest plus formal complaint mechanisms can be effective. Many suppliers use the Small Business Commissioner complaint mechanism rather than direct invoicing.
Does the Procurement Act 2023 replace the late payment statute?
No. PA 2023 strengthens the prompt payment environment with 30-day mandatory payment terms and cascading obligations through the supply chain. The Late Payment of Commercial Debts (Interest) Act 1998 remains in force as a backstop and continues to apply to non-public-sector commercial relationships.