When someone pays you late, you can usually charge extra fees on top of the original debt. These are called late payment fees, and they're designed to compensate you for the time, hassle, and cost of chasing payment.
How much you can charge depends on whether you're dealing with a business or a consumer.
Business-to-business (B2B) debts
If you're a business chasing another business, you have strong legal rights under the Late Payment of Commercial Debts Act 1998.
You can charge:
- Statutory interest: 8% + Bank of England base rate (currently 13.25% total)
- Statutory compensation: Fixed amount based on debt size:
- £40 for debts under £1,000
- £70 for debts £1,000-£9,999
- Contractual late fees: Any fees stated in your terms (if "reasonable")
- Court costs: If you win in court
The good news: You can charge statutory interest and compensation even if you didn't mention them in your invoice or contract. They apply automatically.
Interest accrues daily from the due date until paid.
Business-to-consumer (B2C) debts
If you're chasing a consumer (individual), the rules are much stricter.
You can only charge:
- What's written in your contract
- What's deemed "fair" under the Consumer Rights Act 2015
There's no automatic right to statutory interest or compensation like with B2B debts. Typical consumer late fees are limited to 2-4% interest, and anything higher will likely be reduced by a court.
How to calculate late payment interest
Use this formula:
Interest = (Debt × Annual Interest Rate × Days Late) ÷ 365
Example: £3,000 debt, 45 days overdue
Calculation: (£3,000 × 13.25% × 45) ÷ 365 = £48.70
Daily interest going forward: (£3,000 × 13.25%) ÷ 365 = £1.09 per day
Full example: What you can charge
Let's say a business owes you £3,000 for an invoice that's 45 days overdue, and your terms include a £40 late payment admin fee.
What you can charge:
- Original debt: £3,000
- Statutory interest (45 days): £48.70
- Statutory compensation: £70
- Contractual late fee: £40
- Total: £3,158.70
Plus £1.09 per day until they pay.
What counts as "reasonable" for contractual fees?
Courts can reduce late fees they think are excessive or punitive (meant to punish rather than compensate).
Generally acceptable:
- £25-£50 admin fees for chasing payment
- Interest rates of 8-15%
Likely to be reduced:
- £500 late fee on a £100 invoice
- Interest rates above 20%
The fee should reflect your actual costs (time, postage, phone calls), not be a punishment.
How Garfield helps
Garfield automatically calculates all the late payment fees you're entitled to:
- Uses the current Bank of England base rate for statutory interest
- Adds the correct tier of statutory compensation (£40/£70)
- Includes any contractual late fees from your terms
- Shows a clear breakdown in all letters and court claims
- Ensures everything is legally compliant
You get the maximum recovery you're entitled to, without having to do the maths or worry about getting it wrong.