Charge statutory interest and a fixed compensation on every late invoice

The main contractor is eighty-odd days past the final date for payment on £14,800, the answer on the phone is that it is with commercial, and when the money eventually lands it is the same £14,800 it was in May. You financed their cash flow for three months and got nothing for it.

You were entitled to something for it. Since 1998 a business-to-business debt has carried simple interest at 8% over the Bank of England base rate and a fixed compensation sum, by force of statute, whether or not your contract mentions it and whether or not your invoice says a word about it. On that £14,800 the two of them come to £519.27 as at 20 August 2026, and the interest grows by £4.76 a day until the money arrives.

This page is that mechanism: where the right comes from, what starts the clock, how to work out the number, how to state it on an invoice, and what the three escalation routes actually cost. Every rule carries the section it comes from.

Two rights, and neither one has to be in your contract

The right to interest is section 1 of the Late Payment of Commercial Debts (Interest) Act 1998, and it is worded as an implied term: "It is an implied term in a contract to which this Act applies that any qualifying debt created by the contract carries simple interest subject to and in accordance with this Part."

The right to a fixed sum is section 5A(1): "Once statutory interest begins to run in relation to a qualifying debt, the supplier shall be entitled to a fixed sum (in addition to the statutory interest on the debt)." Section 5A(3) makes that obligation an implied term too.

Implied means it is already in the contract. There is no clause to negotiate and no notice to serve to switch it on. A subcontractor who has issued a hundred invoices with no interest wording on any of them has exactly the same right as one whose terms recite the Act in full.

Section 2(1) sets the boundary: the Act applies "to a contract for the supply of goods or services where the purchaser and the supplier are each acting in the course of a business, other than an excepted contract". Section 2(5) makes consumer credit agreements and security arrangements the excepted ones. A labour-only subcontract, a supply-and-fit order from a main contractor, a fit-out priced for a landlord's managing agent and a maintenance call-off from a housing association are all inside it. A kitchen for a couple in the house they live in is outside it, because they are not acting in the course of a business, and that debt is recovered in the County Court with interest at the court's discretion under section 69 of the County Courts Act 1984, which is the subject of when a homeowner will not pay.

Section 3(1) then defines the qualifying debt as a debt to pay the whole or any part of the contract price. Your application, your valuation, your final account and your retention release are all the contract price.

The Act extends to the whole United Kingdom under section 17, so a subcontractor in Glasgow or Belfast has the identical right; section 3(2) even speaks of what "a court, arbitrator or arbiter" could award, the last word being the Scots one. What differs across the border is the court you enforce in, not the entitlement.

The rate is 11.75%, and it stays 11.75% for the life of that debt

Section 6 hands the rate to the Secretary of State, and the order that sets it is the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002. Article 4 fixes statutory interest at 8 per cent per annum over the official dealing rate, and articles 3 and 4 set it twice a year: the rate in force on 30 June governs 1 July to 31 December, and the rate in force on 31 December governs 1 January to 30 June.

The Monetary Policy Committee held Bank Rate at 3.75% on 18 June 2026 and again on 30 July 2026, so both halves of the year run at 11.75%.

Then the detail that a lot of interest calculators get wrong. Section 4(2) says statutory interest "starts to run on the day after the relevant day for the debt, at the rate prevailing under section 6 at the end of the relevant day". The rate is stamped on the debt when the clock starts and it does not move afterwards. An invoice whose relevant day fell in May 2026 carries 11.75% for its entire life, including through any change on 1 January 2027. Interest is simple, not compound: section 1 says simple, so there is no rolling-up.

What starts the clock: the relevant day

Section 4(2A) gives the rule in two branches. Where there is an agreed payment day, that day is the relevant day. Where there is not, the relevant day is the last day of the relevant 30-day period.

Section 4(2H) says the 30-day period begins with the latest of the day the supplier performed its obligation, the day the purchaser has notice of the amount of the debt, and, where a verification procedure applies, the day fixed by section 4(5B). In ordinary language: thirty days from the later of finishing the work and telling them what it costs. Sending the invoice is what gives notice of the amount, so a job finished on 2 April and invoiced on 7 April starts its thirty days on 7 April.

Three limits stop a contract pushing the relevant day out indefinitely.

Public bodies get thirty days and no more. Section 4(2D) says that where the purchaser is a public authority and the last day of the relevant 30-day period falls earlier than the agreed payment day, the relevant day is the last day of that 30-day period. A council or an NHS trust cannot contract for 45-day terms and escape interest for the extra fifteen. Section 68 of the Procurement Act 2023, in force since 24 February 2025, implies a 30-day payment term into public contracts anyway, and section 73 implies the same term into public sub-contracts so it follows the money down the chain.

Private purchasers get sixty days unless a longer term is fair. Section 4(2E) applies the same cut-off at sixty days for a purchaser that is not a public authority, and section 4(2F) disapplies it only where the agreed payment day "is not grossly unfair to the supplier". A main contractor's standard 90-day subcontract term does not stop interest running from day 61 unless it can show the term is not grossly unfair.

A valuation procedure buys thirty days, not more. Section 4(5A) to (5C) covers contracts with an acceptance or verification procedure, which is what a valuation and certification regime is. The relevant day runs from the day after the procedure is completed, and section 4(5C) provides that where the procedure is not completed within thirty days beginning with the day of performance, it is treated as completed immediately after that period ends. A surveyor who takes eleven weeks to agree the valuation cannot hold the interest clock open for eleven weeks.

Counting it end to end on one subcontract

Take a fit-out subcontract on the Scheme for Construction Contracts default timetable, work in the valuation finished on 30 April 2026, application for payment sent the same day, £14,800 with no VAT because the domestic reverse charge applies.

The sixty-day cut-off in section 4(2E) is worth checking on every job and it does not bite here: the sixty days beginning on 30 April end on 28 June 2026, which is later than 24 May, so the agreed payment day stands as the relevant day.

The arithmetic on the interest is one line. £14,800 at 11.75% is £1,739.00 a year, which is £4.7644 a day across 365 days. Eighty-eight days of that is £419.27. Add the section 5A fixed sum of £100 because the debt is £10,000 or more, and the sum you are owed on 20 August 2026 is £15,319.27, rising by £4.76 every day it stays unpaid.

If no payment notice and no pay less notice were served by 12 and 17 May, section 111 of the Housing Grants, Construction and Regeneration Act 1996 makes the whole £14,800 the notified sum, payable on or before 24 May whatever anyone now thinks the work was worth. That is a separate and much larger point, and it is the pay less notice guide.

The fixed sum lands on each invoice, not on each customer

Section 5A(2) sets three bands, and they have not moved since 2002.

The right arises "once statutory interest begins to run in relation to a qualifying debt", so it is one fixed sum per debt. Each late invoice is its own qualifying debt and carries its own fixed sum. A groundworker sitting on eight unpaid valuations of £4,300, all sixty days past their relevant day, is owed £560 in fixed sums and £664.40 in interest on top of the £34,400, and none of that depends on anything being written into the subcontract.

Reasonable recovery costs, where they beat the fixed sum

Section 5A(2A), inserted in 2013, says that if the reasonable costs of recovering the debt are not met by the fixed sum, "the supplier shall also be entitled to a sum equivalent to the difference between the fixed sum and those costs".

The two are not cumulative, and reading them as cumulative is the common error. On a £4,300 debt where a debt recovery solicitor's letter before claim cost you £250, the fixed sum is £70, the difference is £180, and the total you claim under section 5A is £250. Where the costs come in under the fixed sum, the fixed sum is a floor you keep regardless.

What counts is what you actually and reasonably spent on recovery: a collection agency's fee, a solicitor's pre-action costs, a tracing agent. Your own time chasing is a harder claim, and putting a real invoice from a third party behind the figure is what makes it stick.

When the contract's own interest clause takes over

Part II of the Act decides whether your contract can displace any of this, and section 7(2) draws the line at the moment the debt is created: Part II governs terms agreed before that, and after it "the parties are free to agree terms dealing with the debt". Waiving interest on a specific overdue invoice to keep a client is a decision you are allowed to make. Signing it away in advance is not, except on the Act's terms.

Section 8(1) is blunt: "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." Section 8(2) then provides that where the agreed remedy is substantial, statutory interest is not carried by the debt, and section 8(4)(a) voids a contractual interest right that is not a substantial remedy.

Section 9(1) sets the test. A remedy is substantial unless it is insufficient either to compensate the supplier or to deter late payment, and it would not be fair or reasonable to allow it to be relied on. Section 9(3) lists what a court weighs: the benefits of commercial certainty, the relative bargaining strength of the parties, "whether the term was imposed by one party to the detriment of the other (whether by the use of standard terms or otherwise)", and whether the supplier was given an inducement to agree to it. Three of those four point straight at a main contractor's standard subcontract handed to a two-van firm on a take-it-or-leave-it basis.

The arithmetic tells you what is at stake. On the £14,800 at 88 days late, a clause giving 2% over base is 5.75% and produces £205.17. The statutory 11.75% produces £419.27. And because section 5A(1) hangs the fixed sum on statutory interest beginning to run, a clause that validly ousts statutory interest takes the £100 with it. The JCT and NEC families both set their late payment interest as a percentage over the Bank of England rate rather than excluding interest, so the live question on a construction job is usually whether the percentage in front of you is substantial, not whether interest exists at all.

One more provision is worth knowing because it catches the clever version of the same move. Section 14 deals with a term that postpones the moment the debt is created rather than the moment it is paid, and applies the Unfair Contract Terms Act 1977 to it whether or not it sits in written standard terms.

Putting it on the invoice

The right exists without this. Stating it changes the conversation, because it moves the number from something you might ask for into something already running, and it gives the accounts department a figure to key rather than a principle to consider.

Payment terms: payment is due 30 days from the date of this invoice.

This is a commercial debt under the Late Payment of Commercial Debts
(Interest) Act 1998. If it is not paid by the due date, we will claim
simple interest at 8% over the Bank of England base rate (currently
11.75%, being £4.76 per day on this invoice) from the day after the
due date under section 1, the fixed sum of £100 under section 5A(2),
and our reasonable costs of recovery under section 5A(2A).

Swap the daily figure for your own: the invoice total multiplied by 0.1175, divided by 365. Two lines on a template, applied to every invoice you issue.

When the invoice goes past its relevant day, the chaser stops being a request. It states the sum, the date interest began, the daily rate, the fixed sum, the running total to today, and the date you will start proceedings. A letter with those six numbers in it gets paid at a different rate than a letter asking whether there is any update.

The letter before claim

Which protocol you follow depends on who owes you the money. The Pre-Action Protocol for Debt Claims says at paragraph 1.1 that it applies to any business claiming payment of a debt from an individual including a sole trader, and that it "does not apply to business-to-business debts unless the debtor is a sole trader". Where your payer is a limited company, the Practice Direction on Pre-Action Conduct and Protocols governs instead, and where the dispute is a construction or engineering dispute rather than a plain unpaid debt, the Pre-Action Protocol for Construction and Engineering Disputes applies with its longer timetable.

Against a sole trader, the Debt Claims Protocol requires a Letter of Claim setting out the amount of the debt, whether interest or other charges are continuing to be added, how the debt arose, and how it can be paid, enclosed with an up-to-date statement of account, the Information Sheet and Reply Form at Annex 1 and the Financial Statement at Annex 2. The debtor gets thirty days from the date of the letter to reply. If they reply and the matter is still unresolved after the parties have taken stock, you give at least fourteen days' notice before issuing.

Against a company, the letter does the same work with less prescribed furniture: the sum, the contract, the dates, the interest calculation, the documents you rely on, a reasonable deadline of fourteen to thirty days, and a clear statement of what you will do next.

Money Claim Online, and what the fee actually is

For a specified sum a claim can be issued online at Money Claim Online, which handles claims up to £100,000. The issue fee is set on the amount claimed including the interest, which means the interest you have been accruing pushes the fee band as well as the recovery.

The £15,319.27 claim from the worked example costs £765.96 to issue, and the fee is recoverable from the defendant if you win. Below £10,000 the claim is allocated to the small claims track, where you get the court fee back but not the cost of a solicitor beyond fixed amounts, which is the reason the do-it-yourself route is the sensible one at that size. In Scotland the equivalent is Simple Procedure in the sheriff court for sums up to £5,000 and ordinary cause above it; in Northern Ireland it is the county court, with the Small Claims Court for the lower band and enforcement through the Enforcement of Judgments Office.

Statutory demand and winding up: the sharpest tool, and when it is the wrong one

Section 123(1)(a) of the Insolvency Act 1986 deems a company unable to pay its debts where "a creditor ... to whom the company is indebted in a sum exceeding £750 then due has served on the company, by leaving it at the company's registered office, a written demand (in the prescribed form) requiring the company to pay the sum so due and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it". Northern Ireland runs the same mechanism under the Insolvency (Northern Ireland) Order 1989, and in Scotland the petition goes to the Court of Session or the sheriff court rather than to the Companies Court.

Three weeks after a properly served demand, an unpaid creditor can present a winding-up petition. The court fee is £352 and the Official Receiver's deposit is £2,600, so the route costs about £2,950 to start before anything is recovered. What makes it effective is that a presented petition is advertised, and advertisement freezes the company's bank account and puts every one of its other contracts in question. A company that can pay usually pays inside the three weeks.

That power is precisely why the courts police it. Petitioning on a debt the company genuinely disputes on substantial grounds, or where it has a real cross-claim, is an abuse of process: the company can obtain an injunction restraining the petition and an order for costs, and those costs are frequently on the indemnity basis. The test is not whether you think the dispute is any good. It is whether a dispute exists that is substantial rather than manufactured.

Which gives the route a clean rule of thumb on a construction job. Where the payer has served no payment notice and no pay less notice, and simply has not paid the notified sum, there is no dispute to speak of and the demand is on solid ground. Where the payer has served a pay less notice, or is asserting defects or a set-off, resolve that first and then use the demand on the resolved figure. Resolving it is what adjudication is for: a decision inside 28 days of the referral under section 108 of the Housing Grants, Construction and Regeneration Act 1996 converts a disputed debt into a decided one, and a decided sum is a debt you can demand and enforce. That sequence is set out in how to start an adjudication. Where the sum is large or the payer has raised a defence with real content behind it, an hour with an adjudication specialist before you commit to a route is money well spent.

Alongside all of this, section 112 of the same Act lets you suspend performance on at least seven days' notice where the notified sum has not been paid by the final date, with section 112(3A) entitling you to a reasonable amount for the costs and expenses of doing it. Interest keeps running while you are off site.

What it costs

Claiming statutory interest and the fixed sum costs nothing. There is no application, no form and no fee, because section 1 and section 5A(3) have already written both into your contract.

On AEC Stack there is no monthly subscription. The platform fee is 2.5% of each invoice processed through the platform, taken when the invoice is paid, so a quiet month costs nothing. Your invoices carry their own payment terms, the relevant day is worked out from the dates on the job rather than reconstructed months later, and the interest line on a late invoice is the one that has been accruing since the day it was due.

Take your oldest unpaid invoice, find the day it fell due, multiply the total by 0.1175 and divide by 365, and multiply that by the days since. Then put the figure and the section number in the next email you send, and see how quickly your invoicing starts producing a different reply.