Late Payment Interest on Commercial Debts: The UK and EU Rules

Statutory late payment interest is a right that attaches automatically to overdue business-to-business debts. It is not the same as the interest a bank charges you, and it is not the interest you might negotiate into a contract — it is a floor, written into law, that applies even to a plain invoice with no interest clause at all.

Two limits matter up front. First, both the UK and EU regimes cover commercial transactions only: supplies of goods or services where both parties (or a business and a public authority) are acting in the course of a business. Debts owed by consumers are excluded and governed by entirely different consumer-credit rules. Second, the right runs from the day after payment was due — the agreed date, or, absent an agreed date, a default period (30 days after the goods, services, or invoice are received in most cases). Everything below assumes you are a business chasing another business.

Under the 1998 Act, statutory interest on a qualifying commercial debt is the Bank of England base rate plus 8 percentage points. The 8-point margin is fixed by statute and never moves. The only variable is the base rate — and here the law does something clever to keep the math stable.

The base rate is not tracked day by day. Instead, the rate in force on a reference date is locked in for a full six-month run. For debts that become late between 1 January and 30 June, you use the base rate as it stood on the previous 31 December. For debts that become late between 1 July and 31 December, you use the rate as of 30 June. That reference rate then governs the entire period, even if the Bank of England changes its base rate in the meantime. So a debt that fell late in, say, March uses the base rate as it stood on the previous 31 December — and that single rate applies for the whole time the debt stays unpaid, even if the Bank of England changes its base rate in a later half-year.

Each new reference date sets the rate only for debts that first fall overdue in that half-year — not for one already running. Rather than commit a number to memory, pull the live figure from the UK late-payment commercial rate page, which pairs the current base rate with the fixed 8-point margin.

The EU's Directive 2011/7/EU follows the same shape but with a different anchor. Statutory interest is the European Central Bank reference rate plus at least 8 percentage points. The phrase at least is deliberate: 8 points is a minimum the Directive imposes, and individual member states are free to legislate a higher margin. Several do, which is why the effective rate in one country can sit above another's even in the same month.

The re-fixing rhythm mirrors the UK's half-year logic. The ECB reference rate in force on the first calendar day of each half-year — 1 January for the first half, 1 July for the second — applies for the following six months. National transpositions layer their own rules and margins on top, so "the EU rate" is really a family of country-specific rates built from a common formula. Check the EU late-payment reference rate page for the current ECB anchor, then confirm your specific country's margin.

The arithmetic is simple interest — not compound — which keeps it honest and easy to reproduce. Suppose you are owed £10,000, the invoice was due 60 days ago, and — for example only — the applicable rate works out to a round 12% per year. The daily rate is 12% ÷ 365 = roughly 0.0329% a day, or about £3.29 on £10,000. Across 60 days that is roughly £197 in interest, on top of the £10,000 principal and any fixed compensation.

The EU calculation runs identically: take principal × rate × (days late ÷ 365). The rates above are placeholders chosen for clean math — do not treat 12% as the real figure. Feed the live rate and your actual dates into the late payment interest calculator, which handles the day count for you. If you routinely work out interest across other regimes too, the full calculator index covers judgment and tax interest as well.

Interest is only part of the entitlement. Both regimes add a fixed sum to compensate you for the trouble of chasing payment — and it stacks per invoice, on top of the interest.

• United Kingdom: a fixed charge that scales with the size of the debt — £40 for debts under £1,000, £70 for debts from £1,000 up to £9,999.99, and £100 for debts of £10,000 or more. If your reasonable costs of recovering the debt (for example, a debt-collection agency's fee) exceed the fixed sum, you can claim the difference too.
• European Union: a minimum of €40 per invoice as automatic compensation for recovery costs, again with reasonable additional recovery costs claimable on top. Member states may set the fixed sum higher.

These sums are automatic — you do not have to prove hardship — and they apply to each late invoice separately, so a customer who is habitually late accrues them repeatedly.

The mechanics are refreshingly light. There is no form to file and no permission to seek; the right already exists in the contract by operation of law. In practice:

• Confirm the debt qualifies — a B2B (or business-to-public-authority) supply of goods or services, not a consumer transaction.
• Identify the date interest starts: the day after the agreed due date, or after the statutory default period if none was agreed.
• Pull the correct rate for the period the debt became late, remembering the six-month lock, and calculate simple interest day by day.
• Add the fixed compensation (and any excess reasonable recovery costs), then send a clear statement or demand showing principal, interest, and compensation separately.
• If it remains unpaid, the same figures form the backbone of a formal claim.

This is general information, not legal advice. Rates, reference dates, and national margins change, and edge cases — disputed sums, contractual "substantial remedy" clauses, cross-border deals — can shift the analysis. Always verify against the official source before relying on a number, and see the methodology for how these rates are tracked. American businesses reading this will find no direct equivalent — the closest U.S. analogue is prejudgment interest on an unpaid claim, which you can estimate with the prejudgment interest calculator.