Late payment fees in the UK - what you can charge and how

• Cash flow challenge: My customers don’t always pay on time, and it’s hurting my cash flow and I’m wondering if charging a late payment fee could help.

• Perfect for: Businesses that want to discourage late payments and recover costs without losing customers.

Novuna helps businesses protect their cash flow when clients pay late - 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 late payment challenges, help you apply, and make sure you get the right deal to keep your cash flow on track.

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What is a late payment fee?

A late payment fee is a charge you add to an invoice when a customer hasn’t paid by the agreed date. It’s designed to cover the inconvenience and costs caused by the delay and to encourage customers to settle their bills on time in the future.

For many UK businesses, late payment fees are a practical way to show that you take your payment terms seriously. They can also help recover some of the admin time and cash flow disruption caused by overdue invoices.

When you can charge a late payment fee

You can usually charge a late payment fee if:

• Your payment terms clearly state it in advance.
• The agreed payment date has passed without full payment.
• You have invoiced correctly and provided the goods or services as agreed.

If you don’t specify a late payment fee in your contract or terms, UK law allows you to charge interest and reasonable recovery costs on overdue commercial debts but being upfront with customers is the best approach.

How much should you charge?

The amount depends on your agreement with the customer. Many businesses set a flat fee (e.g. £40, £70, or £100 depending on the invoice size) or a percentage of the invoice amount. Some also add daily interest for each day payment is late.

The key is to be fair and reasonable a fee that feels like a punishment can damage relationships, while a modest fee makes the point without causing friction.

How to apply a late payment fee

1. Include it in your terms: Make sure your late payment policy is clear in contracts, quotes, and invoices.
   
   

2. Send a polite reminder: If payment is late, contact the customer before applying the fee.
   
   

3. Re-issue the invoice: Add the late payment fee as a separate line item.
   
   

4. Follow up: Keep communication professional and solution-focused.

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Alternatives if late payment fees don’t work

Late fees can encourage timely payment, but they don’t guarantee cash in the bank. If overdue invoices are causing serious cash flow problems, options like invoice finance, credit control services, or debt recovery specialists can help you get paid faster and keep operations running smoothly.

How Novuna Business Cash Flow can help

We help businesses that struggle with late payments by offering flexible funding and credit control solutions. Whether you want to reduce the risk of overdue invoices or unlock cash from those already unpaid, we’ll work with you to find the right option for your needs.