Can I Charge Interest on Late Payments as a Tradesman?

A customer is late paying your invoice. You have chased, you have sent reminders, and the payment is now weeks overdue. Can you charge interest on it? The answer depends on whether the work was B2B (business to business) or consumer (directly to a homeowner).

The Late Payment of Commercial Debts Act 1998

For B2B transactions, the Late Payment of Commercial Debts (Interest) Act 1998 gives you a statutory right to charge interest on overdue invoices. This applies if you are a subcontractor working for a main contractor, or a supplier providing goods or services to another business.

The Act sets the interest rate at 8% plus the Bank of England base rate. As of early 2025, the base rate is 5.25%, making the total rate 13.25% per year. That is a significant amount on a large debt.

On top of interest, you can claim fixed compensation for the cost of recovering the debt:

• £40 for debts up to £999.99
• £70 for debts between £1,000 and £9,999.99
• £100 for debts of £10,000 or more

These rights exist automatically. You do not need to have them written into your contract, although it is good practice to reference the Act in your payment terms.

The Late Payment Act was introduced to stop larger businesses delaying payment to smaller suppliers. It gives you legal backing to charge for late payment without needing to negotiate.

How to calculate late payment interest

Here is a practical example. You are owed £5,000 on a B2B invoice. Payment is 30 days late. The current interest rate is 13.25% (8% + 5.25% BoE base rate).

Annual interest on £5,000 at 13.25% = £662.50
Daily rate = £662.50 ÷ 365 = £1.81 per day
Interest for 30 days = £1.81 × 30 = £54.30

On top of that, you can claim £70 fixed compensation (because the debt is between £1,000 and £10,000).

Total you can claim: £5,000 (original debt) + £54.30 (interest) + £70 (compensation) = £5,124.30.

The longer the debt remains unpaid, the more interest accrues. This gives the debtor a strong incentive to pay quickly.

What about consumer work?

The Late Payment of Commercial Debts Act does not apply to consumer transactions. If you are a tradesperson working directly for a homeowner, the Act does not cover you.

However, you can still charge interest if it is in your contract terms. For example, your contract could include a clause like: "Invoices not paid within 14 days of the due date will incur interest at 2% per month."

The key is that it must be in the contract before work starts. You cannot add late payment terms retrospectively. This is why having a written contract with clear payment terms is essential for domestic work.

How to claim late payment interest

If you are entitled to charge interest (either under the Late Payment Act for B2B work, or under your contract terms for consumer work), include it in your formal demand letter.

State clearly:

• The original amount owed
• The due date
• The number of days overdue
• The interest rate you are applying
• The total amount now due, including interest and any compensation

For a template and guide, see our article on how to write a dispute letter.

Does charging interest actually work?

In practice, charging interest does two things. First, it makes the debtor take you more seriously. A letter that includes interest and compensation shows you know your legal rights. Second, if the case goes to court, you can claim the interest as part of your claim — and the court will usually uphold it if you have followed the rules.

Many late payments are resolved as soon as the debtor realises they are accruing interest and compensation. Nobody wants a £5,000 debt to become a £5,500 debt, then a £6,000 debt, while they delay.

The best protection is a clear contract

Whether you are doing B2B or consumer work, the best protection is a clear contract with defined payment terms. For B2B work, reference the Late Payment of Commercial Debts Act. For consumer work, include a late payment clause with a reasonable interest rate.

A signed TradeContract includes clear payment terms and gives you a strong legal position if a customer is late paying. Try it free at TradeContract.