The Late Payment of Commercial Debts (Interest) Act 1998 gives UK B2B creditors an automatic right to statutory interest at the Bank of England base rate plus 8 percent on overdue invoices, plus fixed compensation of £40-£100 per invoice. The rights apply by default and cannot be contracted out of except through a "substantial remedy".
The Late Payment of Commercial Debts (Interest) Act 1998 (LPCDA 1998) is a short, operationally important UK statute. It gives a commercial creditor an automatic legal right to interest and fixed compensation on overdue B2B invoices. The rights apply by default: no contract clause is required to trigger them, and a contractual attempt to exclude them is valid only if the contract provides a "substantial remedy" for late payment.
For a UK creditor or an overseas creditor contracting under UK law, the Act is consequential arithmetic. An invoice of £50,000 unpaid for six months, under default law alone, accrues £2,950 in statutory interest and £100 in fixed compensation — before any litigation or commercial negotiation. This article walks through the sections, the amendment history, and the case law that shapes how the Act actually operates.
ProvisionEffectReferenceStatutory interest rateBank of England base rate + 8% per annums.6 LPCDA 1998Applicable periodFrom 30 days after later of invoice receipt or goods deliverys.4 LPCDA 1998Fixed compensation£40 (debts <£1,000), £70 (£1k-£10k), £100 (>£10k)s.5A LPCDA 1998Contracting outPermitted only if "substantial remedy" provideds.9 LPCDA 1998Recoverable costsReasonable costs of recovery, where exceeding fixed comps.5A(3) LPCDA 1998ScopeContracts between commercial parties for supply of goods or servicess.1-2 LPCDA 1998
Section 1 of the Act introduces the policy: to make provision for interest and compensation in respect of the late payment of certain debts arising under commercial contracts. Section 2 defines the scope: contracts for the supply of goods or services where the purchaser is acting in the course of business and the supplier is likewise.
Consumer contracts are outside the Act. Contracts between two commercial parties are within. A creditor selling to a limited company, partnership, sole trader, LLP, or other business entity is on the commercial side of the line.
Three automatic rights apply to any qualifying overdue invoice:
Section 6 sets the statutory rate at "8% above the Bank of England base rate" (the "official dealing rate"). The rate is calculated on a simple basis, applied from the date interest begins to run under s.4 (generally 30 days after the later of invoice receipt and goods delivery).
At a Bank of England base rate of 5 percent, the statutory rate is 13 percent annualized. At a base rate of 3.5 percent, the statutory rate is 11.5 percent. The rate follows the Bank of England rate changes: if the rate changes mid-invoice-period, the interest calculation reflects the blended rate.
Section 5A, inserted by the Late Payment of Commercial Debts Regulations 2002 and amended in 2013 to implement EU Directive 2011/7/EU, provides for a flat compensation payment per invoice. The amounts are tiered by debt size:
These are fixed, automatic, and require no proof of actual loss. A creditor with 50 overdue invoices over £10,000 is entitled to £5,000 in fixed compensation (50 × £100), regardless of actual collection cost.
Section 5A(3) permits recovery of reasonable costs of recovery to the extent they exceed the fixed compensation. A creditor whose collection costs (legal fees, agency fees, internal administrative cost) demonstrably exceed the £40-£100 fixed compensation can recover the excess on proof.
In practice, this provision is rarely used for mid-value claims because proving a specific cost allocation is administratively difficult. For high-value claims where collection costs are measurable and material, s.5A(3) becomes worth invoking.
The most consequential provision of the Act is section 9, which addresses contracting out. Parties are permitted to agree alternative late-payment remedies in the contract, but the alternative must be a "substantial remedy." If it is not, the contractual term is void and the statutory rate applies.
The substantial remedy test was clarified by the Court of Appeal in Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720 (TCC). The court held that a contractual interest rate of 0.5 percent above base rate was not a substantial remedy. The statutory rate (base plus 8 percent) was therefore reinstated.
The operational implication: a purchase order clause stating "interest on late payment shall be at 2 percent per annum" is likely unenforceable; the 8-percent-above-base statutory rate applies. Contractual clauses that materially undercut the statutory rate are typically struck down.
Corollary: a creditor does not need to fight for the inclusion of a particular interest clause in the contract. Base LPCDA applies by default. The creditor loses statutory rights only if (a) the contract provides a substantial remedy (approximately matching the statutory rate) or (b) the contract is outside the Act's scope (consumer, or the purchaser is not commercial).
Interest under LPCDA runs from "the day after the relevant day for the debt" under s.4. The relevant day is:
Two practical points for creditors:
The 2013 amendments to LPCDA, implementing EU Directive 2011/7/EU, introduced specific anti-avoidance rules. For contracts between two commercial parties (where neither is a public authority), the parties can agree a payment period longer than 60 days only if that longer period is "not grossly unfair to the creditor" (s.8A).
The court assesses gross unfairness based on: any gross deviation from good commercial practice, the nature of the goods or services, and whether the purchaser has any objective reason for the longer period. Pure bargaining power of a large purchaser over a small supplier is not a sufficient objective reason.
For public authority purchasers, the limit is stricter: 30 days by default, 60 days with specific justification.
The anti-avoidance rules rarely produce litigation, but they shape negotiation. A supplier who has reluctantly agreed to 90-day payment terms with a dominant purchaser retains the argument that the clause is unenforceable under s.8A.
Across UK commercial recovery files reviewed over the last 18 months, the most common omission in demand letters and claim forms was the fixed compensation under s.5A. Creditors typically claim the principal and statutory interest, but neglect the £40-£100 per invoice fixed compensation.
For a mid-size B2B creditor issuing 500 invoices annually with 10 percent overdue past 30 days, the fixed compensation entitlement is £5,000 to £50,000 per year depending on average invoice value. A creditor not claiming it is forgoing a legal entitlement.
The simple practice that captures this value: every demand letter, every agency placement, and every claim form template should include two standard lines at the foot of the financial calculation:
Adding these lines takes no additional work at scale (template insertion). The economic uplift is measurable.
It is a UK statute granting automatic rights to UK commercial creditors on overdue B2B invoices: statutory interest at the Bank of England base rate plus 8 percent, and fixed compensation of £40-£100 per invoice. The rights apply by default unless the contract provides a substantial alternative remedy.
The rate is the Bank of England base rate plus 8 percentage points, calculated simple-interest from 30 days after the later of invoice receipt and goods delivery (or from the contract-specified due date if earlier). At current base rates, the statutory rate is typically 11-14 percent per annum.
Only partially. Section 9 permits contracts to include alternative late-payment remedies, but only if the alternative is a "substantial remedy." Case law, notably Yuanda (UK) Co Ltd v WW Gear Construction Ltd, holds that interest rates materially below the statutory rate are not substantial. Contractual attempts to exclude LPCDA generally fail.
Yes, provided the contract is governed by English or Welsh law and the parties are commercial. A US exporter selling to a UK company under a contract specifying English law has full LPCDA rights. A US exporter under a New York-law contract does not, even if the debtor is in the UK.
Three tiers by debt size: £40 for debts under £1,000, £70 for debts £1,000-£10,000, £100 for debts above £10,000. The compensation is per invoice, not per creditor. A creditor with 10 overdue invoices of £5,000 each is entitled to 10 × £70 = £700 in fixed compensation.
A UK commercial invoice sitting overdue without statutory interest and compensation on the demand is a claim below its legal value. Place a case for an LPCDA-compliant demand within one business day.
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