Charging interest on late payments in the UK - your legal options

• Cash flow challenge: My customers often take weeks or months to pay, and I want to know if charging interest could encourage them to settle on time.

• Perfect for: Businesses looking for a fair, legal way to recover costs when invoices are paid late.

Novuna helps businesses reduce the impact of late payments, either through our award-winning in-house service or by comparing the market to find the best fit for your needs.

We work with providers who understand the challenges of chasing overdue invoices, help you apply, and make sure you get the right deal to protect your cash flow.

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What does charging interest on late payments mean?

Charging interest on a late payment means adding an extra cost to an overdue invoice, usually calculated as a percentage of the amount owed. It’s designed to cover the financial impact of waiting for payment and to motivate customers to pay sooner.

When you can charge interest

You can normally charge interest if:

• You’ve agreed the terms in advance with the customer.
• The payment due date has passed.
• You’ve delivered the goods or services as agreed.

Even if you don’t include interest in your contract, UK rules allow businesses to add statutory interest on overdue commercial debts. But in practice, being transparent from the start makes it easier to enforce.

How much interest can you charge?

Many businesses set a rate in their payment terms for example, a few percent above the Bank of England base rate. Others follow statutory interest rates for commercial debts.

The key is to choose a rate that’s fair and clearly communicated, so customers understand the cost of paying late. Charging too high a rate can cause disputes or damage relationships.

How to add interest to an overdue invoice

1. Make sure it’s in your terms – Include the interest rate in contracts, quotes, and invoices.
   
   

2. Send a polite reminder – Let customers know payment is late and interest will be applied.
   
   

3. Re-issue the invoice – Show the original amount, the interest calculation, and the new total.
   
   

4. Stay professional – Keep communication factual and focused on resolving the payment.

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When charging interest isn’t enough

While charging interest can encourage better payment habits, it doesn’t guarantee you’ll get your money quickly. If late payments are a regular problem, you may need extra support such as credit control services, invoice finance, or debt recovery to keep your cash flow healthy.

How Novuna Business Cash Flow can help

We work with UK businesses to manage and prevent late payment issues. From securing upfront funding against unpaid invoices to connecting you with experienced credit control specialists, we’ll help you choose the right solution to keep your business running smoothly.