The OTR GroupBusiness development is usually discussed in terms of winning new work. Yet a growing business can be undermined just as easily by customers who pay late. When an invoice runs past its due date, the cost is not only the delay itself: it is the supplier you cannot pay on time, the hire you postpone and the project you cannot start. At The OTR Group we think that getting paid reliably is part of delivery, not an afterthought. This article summarises what GOV.UK says about charging interest on late commercial payments. It is general information, not legal advice.
What the guidance says
GOV.UK's guidance on charging interest on commercial debt says that the statutory interest rate is 8% plus the Bank of England base rate for business-to-business transactions. It applies when a business is paid late by another business for goods or services it supplied.
The guidance also sets out some important conditions:
- You cannot claim statutory interest if there is a different rate of interest in a contract.
- You cannot use a lower interest rate if you have a contract with public authorities.
- To add interest to the money owed, you need to send a new invoice.
GOV.UK also refers to separate guidance on claiming debt recovery costs on late payments. If a debt is significant, it is worth reading that guidance rather than guessing what may be recoverable.
Prevention is better than recovery
Charging interest is a remedy, not a plan. Most businesses would rather be paid on time than collect interest, and a few habits make that more likely.
- Agree terms before work begins. Put payment dates, invoicing requirements and any interest provisions in the contract. As the guidance notes, a contractual rate can replace the statutory one, so clarity at the start matters.
- Invoice promptly and accurately. Delays in sending an invoice are delays in being paid. Include the purchase order number, the right billing contact and the due date.
- Know your customer's process. Ask how and when invoices are approved and when payment runs take place. A well-timed invoice can avoid weeks of waiting.
- Follow up early and politely. A friendly reminder a few days before the due date often resolves problems. Keep a record of all communication.
- Escalate in steps. If payment is overdue, move from reminder to a formal letter and then, if necessary, to the recovery routes described by GOV.UK or a legal adviser.
Build payment risk into business development
When assessing a new opportunity, the size of the contract is only one question. How is the customer likely to pay? What happens to your cash flow if a large invoice is delayed by thirty days? Could you still pay your team and suppliers? Treating payment terms as part of the proposal, rather than as small print, helps you take on work you can actually afford to deliver.
Smaller suppliers can also consider staging work and invoices, so that exposure at any moment stays manageable. Milestone invoicing, deposits where appropriate and clear acceptance criteria all reduce the amount of money tied up in unpaid work.
A note on caution
Rules, rates and exceptions can change, and the right approach depends on your contract and circumstances. Check the current position on GOV.UK, and take legal advice before pursuing a disputed debt.