Late payment clause

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Do you want a rate in your terms?

You already have a right to interest without writing anything. This page works out whether writing your own makes you better or worse off.

Your rate, % Per

Your payment terms, days

A typical late invoice, so the difference is money

Invoice value, £ Days late

This matters more than it looks. The statutory fixed sum is a flat amount, so it dominates a small invoice and barely registers on a big one left unpaid for months.

This clause costs you money statutory 11.75%

With your clause 8% £65.75 interest only, no fixed sum

Writing nothing 11.75% £166.58 including the £70.00 fixed sum

You lose £100.83 on this one invoice, and on every late invoice while those terms are in use.

Break-even on this example is 20.27%, not 11.75%, because a clause also costs you the £70.00 fixed sum.

Wording

Payment is due within 30 days of the date of our invoice.

If any sum is not paid when due, interest is payable on the overdue amount at 8% per annum, calculated on a daily basis from the day after the due date until payment is received in full, whether before or after judgment.

This clause sets the rate of interest applicable to late payment and applies in place of the rate provided for by the Late Payment of Commercial Debts (Interest) Act 1998.

A template built from the legislation, not legal advice. UK business-to-business contracts. Nothing uploaded.

Worth knowing

YOU ALREADY HAVE A RIGHT TO INTEREST AND YOU DID NOT HAVE TO WRITE ANYTHING. s.1(1) of the 1998 Act: "It is an implied term in a contract to which this Act applies that any qualifying debt created by the contract carries simple interest". It is automatic on any qualifying business-to-business contract, currently 11.75% a year, plus a fixed sum of £70.00 on an invoice this size. Every article telling you to add a late payment clause starts from the assumption that you have nothing. You have this.
A CLAUSE DOES NOT ADD TO THAT RIGHT, IT REPLACES IT. gov.uk: you cannot claim statutory interest if there is a different rate of interest in a contract. So the moment you write a rate into your terms, the statutory rate stops applying and the s.5A fixed sum goes with it, because that only arises once statutory interest begins to run. You are not stacking two entitlements, you are choosing one.
OR THE CLAUSE IS SIMPLY VOID, AND YOU DO NOT GET TO CHOOSE WHICH. s.8(1): "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." So a low clause either displaces the statutory right, and you took the pay cut, or it fails the substantial remedy test and is void, and it achieved nothing. The Act does not define "substantial", so nobody can tell you in advance which of the two you have written, and you find out while you are already arguing about the money. That uncertainty is itself the reason to leave the rate alone.
THIS CLAUSE IS A PAY CUT YOU WROTE YOURSELF. At 8% you would recover £65.75 on the example, against £166.58 with no clause at all: £100.83 WORSE, on one invoice, and on every late invoice for as long as those terms are in use. "Interest at 8% per annum" reads firm and is lower than the 11.75% you already had for nothing. Delete the clause and you are better off.
ON AN INVOICE THIS SIZE THERE IS NO CLAUSE RATE THAT WORKS, and that is arithmetic rather than opinion. The fixed sum is a flat £70.00 however small the interest is, so on £5,000.00 at 60 days late it swamps everything: you would need about 20.27% just to match doing nothing, and a rate up there invites the penalty argument that gets clauses struck out. Every rate below it loses money and every rate above it risks being unenforceable. Write no rate. The picture changes on a large debt left unpaid for months, where the fixed sum stops dominating, so try a bigger example if that is your real situation.
The statutory rate moves twice a year and is fixed at the 30 June or 31 December before a debt goes overdue, so it is not one number forever. Base rate table verified 2026-08-16. A clause written today is compared here against the rate that applies today, and the gap will change.

Worked out on this device, by this page. Nothing you typed was sent anywhere or stored, and closing the tab loses it.

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You already have the right, and a clause can take it away

Every article on this subject tells you to put a late payment clause in your terms. In the UK that advice starts from a false premise, and following it will usually cost you money.

Section 1(1) of the Late Payment of Commercial Debts (Interest) Act 1998: it is an implied term in a contract to which the Act applies that any qualifying debt created by the contract carries simple interest. Implied. You do not write it, negotiate it or mention it, and you have it anyway on any qualifying business-to-business contract.

That gives you 8% over the Bank of England base rate, plus a fixed sum of £40 to £100 depending on the size of the invoice, per invoice.

And a clause replaces it rather than adding to it

Here is the sentence that changes the advice. gov.uk, on claiming statutory interest: you cannot claim it if there is a different rate of interest in a contract.

So the two positions are alternatives. Write a rate into your terms and the statutory rate stops applying to you. The fixed sum goes too, because section 5A only bites once statutory interest begins to run, and it no longer does.

Or the clause is void, and you do not get to choose which

There is a second section that makes this worse rather than better.Section 8(1): any contract terms are void to the extent that they purport to exclude the right to statutory interest, unless there is a substantial contractual remedy for late payment of the debt.

So a low clause does one of two things, and nobody can tell you which in advance:

If it is a substantial remedy, it displaces the statutory right and you have taken the pay cut.
If it is not, the term is void and the statutory right applies anyway, so the clause achieved nothing.

The Act deliberately does not define "substantial", and this page is not going to invent a threshold it left open. What can be said is that the uncertainty is itself the argument. A clause that is either a pay cut or a dead letter, and which only reveals which while you are already arguing about the money, is worse than the implied right you had for nothing.

Which makes the commonest clause in Britain a pay cut

"Interest will be charged on overdue accounts at 8% per annum." It appears in an enormous number of terms and conditions. It reads firm. It is a reduction.

The statutory rate is base plus 8. At a 3.75% base rate that is 11.75%. The clause hands back three and three quarter points and the fixed sum along with it, on every late invoice, for as long as those terms are in use, and nobody ever notices because the clause looks like it is doing something.

The other common clause fails the other way

"2% per month" is the alternative people reach for. That is 24% a year, which is how a court will read it.

A rate up there invites the argument that the clause is a penalty rather than a genuine pre-estimate of loss. An unenforceable clause is worth considerably less than the statutory rate you gave up in order to have it, and nobody has ever argued that Parliament's own rate is a penalty.

Where break-even sits, and why it is often out of reach

This surprised us while building the page, and it falls straight out of the arithmetic.

Because a clause also costs you the fixed sum, matching the statutory rate exactly still leaves you worse off. Break-even is above the statutory rate, not at it. And the fixed sum is a flat amount, so on a small invoice it dominates completely.

On a £5,000 invoice sixty days late: statutory interest is about £97, and the fixed sum is £70. To match that with a clause alone you would need roughly 20%, not 11.75%. But 20% is where the penalty argument lives.

So on an ordinary small invoice there is no clause rate that works. Everything below break-even loses money and everything above it risks being struck out. That is arithmetic rather than an opinion, and the answer it gives is: do not write a rate.

The picture changes on a large debt left unpaid for months, where £100 stops mattering next to the interest and break-even settles close to the statutory rate. If that is your real situation, put your real numbers in above and the tool will tell you.

What your terms should say instead

Not nothing. Set your payment period, because the Act needs a due date in order to know when a debt is late, and leave the rate alone.

The wording this page produces does exactly that: it fixes when payment is due and then expressly says interest is as provided for by the 1998 Act. That is the belt-and-braces version of writing nothing, and it stops a future reader assuming the omission was an oversight.

One thing this page will not tell you

Whether any of this holds outside the UK. Statutory interest as an implied term is a British instrument, and whether Australia, the United States or Canada gives you an equivalent automatic right is a question that needs their legislation read rather than an article about it summarised.

If the answer over there is that no automatic right exists, then skipping the clause would cost a business its entire entitlement, which is the exact opposite of the advice on this page. That is too important to guess at, so this tool is UK only until somebody has read the rest properly.

Common questions

Do I need a late payment clause in my terms?

Usually not, and this is the opposite of the advice everywhere else. Section 1(1) of the Late Payment of Commercial Debts (Interest) Act 1998 says it is an implied term in any contract the Act applies to that a qualifying debt carries simple interest. It is automatic on business-to-business contracts. You get 8% over base without writing a word, plus a fixed sum of £40 to £100 per invoice. A clause is optional.

Does a clause add to the statutory right?

No, it replaces it. gov.uk puts it plainly: you cannot claim statutory interest if there is a different rate of interest in a contract. So the moment you write a rate into your terms, the statutory rate stops applying, and the section 5A fixed sum goes with it, because that only arises once statutory interest begins to run. You are choosing between two positions, not stacking them.

Could my clause just be void instead?

Yes, and you do not get to choose which happens. Section 8(1) says any contract terms are void to the extent they purport to exclude the right to statutory interest, unless there is a substantial contractual remedy for late payment. So a low clause either displaces the statutory right, in which case you took the pay cut, or it fails that test and is void, in which case it achieved nothing. The Act does not define "substantial", so nobody can tell you in advance which one you have written, and you find out while you are already arguing about the money.

Is "interest at 8% per annum" a good clause?

It is a pay cut. The statutory rate is 8% over base, which at a 3.75% base rate is 11.75%. Writing "8% per annum" sounds firm and hands back three and a half points, plus the fixed sum you also gave up. It is one of the commonest late payment clauses in British terms and conditions, and it makes the business worse off on every late invoice for as long as those terms are in use.

What about "2% per month"?

That annualises to 24%, which is the other common clause and it fails in a different direction. A rate that high invites the argument that it is a penalty rather than a genuine pre-estimate of loss, and an unenforceable clause is worth less than the statutory rate you gave up in order to have it. Nobody argues about whether Parliament's own rate is a penalty.

So what rate would actually be worth writing?

Higher than you would guess, and on a small invoice there may not be one. Because a clause also costs you the flat fixed sum, break-even is above the statutory rate, not at it. On a £5,000 invoice sixty days late the fixed sum is £70 against £97 of interest, so break-even is about 20% rather than 11.75%. Anything below that loses money and anything above it starts looking like a penalty. On a large debt left unpaid for months the fixed sum stops mattering and break-even settles close to the statutory rate.

Should my terms say nothing at all then?

They should set your payment terms and stop there. The Act needs a due date to know when a debt is late, so silence on that is unhelpful. What you leave alone is the rate. This page generates wording that fixes the payment period and expressly leaves interest to the Act, which is the belt-and-braces version of writing nothing.

Does this apply outside the UK?

This page is UK only and deliberately so. Statutory interest as an implied term is a British instrument, and whether other markets have an equivalent automatic right is a question that needs their own legislation read rather than a summary of it. Getting that wrong in a contract generator could cost somebody an entitlement they already had, so nothing here asserts it.