---
title: "How to Calculate Interest on Overdue Invoices (UK)"
date: 2026-06-06T19:51:57.428+00:00
url: https://paymentcheck.co.uk/blog/interest-and-fees/how-to-calculate-interest-on-overdue-invoices
description: "Charge statutory interest on late invoices in the UK: 8% + Bank of England base rate, plus fixed compensation. Worked example and free calculator."
category: "Interest and Fees"
---

# How to Calculate Interest on Overdue Invoices (UK)

If a business customer has missed your payment deadline, you are legally entitled to charge interest and compensation on the overdue amount. You do not need a clause in your contract to do it. UK law gives every business this right by default, and the rate is set high enough to actually matter.

This guide explains exactly how to calculate interest on an overdue invoice, when you can start charging, how much you can add in fixed compensation, and how to put it into a payment demand. There is a worked example with real numbers below, and you can run your own figures through our [free late invoice calculator](/free-late-invoice-calculator) in seconds.

## What law lets you charge interest on late invoices?

In the UK, the right to charge interest on overdue commercial invoices comes from the **Late Payment of Commercial Debts (Interest) Act 1998**. It applies to business-to-business transactions for the supply of goods or services. It does not apply to consumer debts (sales to private individuals).

Under this Act you can claim three things on a late commercial payment:

1. **Statutory interest** on the overdue amount.
2. A **fixed compensation** sum for the cost of chasing the debt.
3. **Reasonable debt-recovery costs** above that fixed sum, where you can justify them.

Crucially, you are entitled to these by statute even if your invoice or contract says nothing about late payment. If your contract sets its own interest rate, that can apply instead, but it must be a "substantial remedy", otherwise the statutory rate takes over.

## What is the statutory interest rate?

Statutory interest is calculated as:

**8% + the Bank of England base rate**

The base rate is fixed for the purposes of this calculation twice a year:

- For invoices that became late between **1 January and 30 June**, you use the base rate in force on **31 December**.
- For invoices that became late between **1 July and 31 December**, you use the base rate in force on **30 June**.

With the Bank of England base rate currently at **3.75%**, the statutory interest rate is:

> 8% + 3.75% = **11.75% per year**

That is a deliberately punishing rate. It is meant to make late payment more expensive than paying you on time, and it is far higher than most overdrafts.

## When can I start charging interest?

Interest starts to accrue **from the day after payment was due** and runs until the day you are actually paid.

The due date depends on what you agreed:

- If you agreed a payment date, interest runs from the day after that date.
- If you did not agree a date, the law gives a default of **30 days** after the later of (a) the customer receiving the invoice, or (b) the goods or services being delivered.

So if an invoice was due on 1 April and is paid on 16 May, interest is charged on the days from 2 April up to and including the payment date.

## How do I calculate statutory interest?

The formula is simple:

> **Daily interest = (Invoice amount × annual rate) ÷ 365**
>
> **Total interest = daily interest × number of days late**

Three steps:

1. **Find the annual rate** — 8% plus the relevant Bank of England base rate (currently 11.75%).
2. **Work out the daily amount** — multiply the overdue amount by the rate, then divide by 365.
3. **Multiply by the number of days late** — count from the day after the due date to the payment date.

### Worked example: a £5,000 invoice paid 45 days late

Let's use a £5,000 invoice that is paid 45 days after the due date, at the current rate of 11.75%.

**Step 1 — annual interest:**

£5,000 × 11.75% = **£587.50 per year**

**Step 2 — daily interest:**

£587.50 ÷ 365 = **£1.6096 per day**

(Or directly: £5,000 × 0.1175 ÷ 365 = £1.6096 per day.)

**Step 3 — multiply by days late:**

£1.6096 × 45 days = **£72.43 in interest**

So on a £5,000 invoice that is 45 days overdue, you can charge **£72.43** in statutory interest on top of the original amount.

Interest keeps accruing every day the debt remains unpaid, so the figure rises until the customer settles. If they pay on day 60 instead of day 45, the interest would be £1.6096 × 60 = £96.58.

## How much fixed compensation can I add?

On top of interest, the Act lets you claim a **one-off fixed compensation sum** for each overdue invoice, to cover the cost of having to chase it. The amount depends on the size of the debt:

| Amount owed | Fixed compensation |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |

Our £5,000 invoice falls into the middle band, so you can add **£70** in compensation.

This is a flat sum per invoice, not per day, and it is in addition to the interest. So for our example the total extra you can claim is:

> £72.43 interest + £70 compensation = **£142.43** on top of the £5,000.

If your actual recovery costs (for example, a debt collection agency or legal fees) exceed the fixed sum, you can also claim the reasonable difference under the Act.

## How much can I charge in total?

To summarise what you can add to an overdue commercial invoice:

- **Statutory interest** at 8% + base rate (11.75% now), accruing daily from the day after the due date.
- **Fixed compensation** of £40, £70 or £100 depending on the debt size.
- **Reasonable extra recovery costs** above the fixed compensation, where justified.

There is no cap on how long interest can run, and no requirement to warn the customer in advance that you intend to charge it. That said, flagging it clearly tends to get invoices paid faster.

For a fuller breakdown of your entitlements and the limits that apply, see our companion guide: [How much interest can I charge on late payments? (UK)](/blog/interest-and-fees/how-much-interest-can-i-charge-on-late-payments-uk).

## Do I have to charge interest?

No. The right to charge statutory interest is yours to use or waive. Some businesses choose not to charge a long-standing customer who is normally reliable, while others apply it consistently as a deterrent.

A practical middle ground is to **state your entitlement on every invoice** ("We reserve the right to charge interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998 on overdue amounts") and then decide case by case whether to enforce it. Even mentioning it signals that you take payment terms seriously.

## How do I add the interest to a payment demand?

Once you have your figures, the cleanest way to claim is to send a formal late-payment notice that itemises:

- the original invoice number, amount and due date
- the number of days overdue
- the daily interest rate and the running interest total
- the fixed compensation band that applies
- the new total now owed and a fresh payment deadline

You can generate and send a properly worded demand using our [late payment notice tool](/#send-notice), which fills in the legislation reference and the numbers for you.

For the wider strategy around recovering the debt — escalation, tone, and what to do if the customer still does not pay — read [How to chase an unpaid invoice (UK)](/blog/debt-collection/how-to-chase-an-unpaid-invoice-uk).

## Calculate your interest in seconds

Doing the maths by hand is fine for one invoice, but it gets fiddly when the rate changes mid-period or you are juggling several overdue accounts. The quickest, error-free option is to use our **[free late invoice calculator](/free-late-invoice-calculator)**: enter the invoice amount, the due date and the date paid (or today), and it returns the statutory interest, the correct compensation tier and the total owed, ready to drop into a demand.

It uses the current Bank of England base rate automatically, so you do not have to look it up.

## Key points to remember

- The legal basis is the **Late Payment of Commercial Debts (Interest) Act 1998** — business-to-business debts only.
- Statutory interest is **8% + the Bank of England base rate** (currently **11.75%**).
- Interest accrues **daily from the day after the due date** until you are paid.
- **Daily interest = amount × rate ÷ 365**, then multiply by the days late.
- Add **fixed compensation** of £40, £70 or £100 depending on the debt size.
- You do not need a contract clause, and you can apply it even without prior warning.

Late payment is a cash-flow problem you are entitled to be compensated for. Run your numbers through the [free late invoice calculator](/free-late-invoice-calculator) and, if you are ready to act, send a [late payment notice](/#send-notice) today.