Late Payment Fee: How to Charge Interest on Overdue Invoices (2025)
Updated May 2025 · 9 min read
You've sent the invoice. The due date passed. The client is ignoring you. Now what? Late payment fees are your legal right — in the UK, EU, and most of the world — but most freelancers never charge them because they don't know how. This guide fixes that.
What Is a Late Payment Fee?
A late payment fee (also called a late payment charge, overdue fee, or interest on late payment) is an additional charge added to an invoice when a client pays after the agreed due date.
There are two types:
- Fixed fee — a flat charge (e.g., £50 per month overdue) — simple and predictable
- Interest-based fee — a percentage of the outstanding amount per day/month/year
Both are valid. Interest-based fees are more legally robust (especially in the UK/EU) because they align with statutory rates that courts recognise.
Your Legal Right to Charge Interest
In the UK, the Late Payment of Commercial Debts (Interest) Act 1998 gives you an automatic right to charge statutory interest on overdue B2B invoices — even if your contract says nothing about it.
✅ Key point
You don't need a late payment clause in your contract to charge UK statutory interest. The law gives you this right automatically for B2B transactions. However, having a clause makes it much easier to enforce and psychologically primes clients to pay on time.
The law applies to: sole traders, freelancers, small businesses, and larger companies — as long as both parties are businesses (B2B). Consumer invoices are covered by different rules.
UK Statutory Interest Rate (2025)
8% + Bank of England base rate
Current Bank of England base rate: 4.25% (as of May 2025)
Total statutory rate: 12.25% per year
This rate applies per year, on the overdue amount. You can also claim a fixed debt recovery coston top:
| Debt amount | Fixed recovery cost |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
Source: Late Payment of Commercial Debts (Interest) Act 1998
EU Late Payment Directive
EU Directive 2011/7/EU sets a minimum statutory rate of:
ECB reference rate + 8 percentage points
ECB rate as of May 2025: 3.40% → statutory rate: 11.40% per year
| Country | Statutory rate (approx.) | Payment period limit (B2B) |
|---|---|---|
| Netherlands | ECB +8% = ~11.4% | 30 days (60 by agreement) |
| Germany | ECB +9% = ~12.4% | 30 days |
| France | ECB +10% = ~13.4% | 60 days |
| Belgium | ECB +8% = ~11.4% | 30 days |
| Spain | ECB +8% = ~11.4% | 60 days |
| UK (post-Brexit) | BoE +8% = ~12.25% | No statutory limit, 60 days common |
How to Calculate Late Payment Interest
Formula:
Example: £2,500 invoice, 45 days late (UK)
| Invoice amount | £2,500 |
| Days overdue | 45 |
| Annual rate | 12.25% |
| Interest | (£2,500 × 0.1225) / 365 × 45 = £37.84 |
| Debt recovery cost | £70 (£1,000–£9,999 band) |
| Total extra charge | £107.84 |
Not massive. But it matters: the psychological effect of being told you're accruing interest daily is often more powerful than the amount itself.
Late Payment Clause Templates
Add one of these to your invoice footer, terms, or contract. Copy-paste and adapt:
Template 1 — UK Statutory Interest (simple)
RecommendedInvoices unpaid after the due date will accrue interest at 8% per annum above the Bank of England base rate under the Late Payment of Commercial Debts (Interest) Act 1998. A debt recovery cost of £40–£100 will also be charged.
Template 2 — Fixed monthly fee (international)
Payment is due within [30] days. Overdue invoices will be charged a late payment fee of 2% per month (24% per annum) on the outstanding balance, calculated from the due date. This fee will be invoiced separately and is due immediately upon issuance.
Template 3 — Dutch / EU standard
Bij te late betaling is de opdrachtgever van rechtswege in verzuim en is de wettelijke handelsrente (art. 6:119a BW) verschuldigd, vermeerderd met buitengerechtelijke incassokosten conform het Besluit vergoeding voor buitengerechtelijke incassokosten.
Dutch legal text — includes statutory trade interest + debt collection costs
Template 4 — Escalating fee (firm stance)
Invoices must be paid within [15] days. If payment is not received within 30 days of the invoice date, a late fee of 5% of the invoice total will be applied. If payment is not received within 60 days, this increases to 10% and the matter will be referred to a debt collection agency.
How to Actually Collect Late Payment Fees
Having the legal right is one thing. Getting paid is another. Here's what actually works:
Mention it on every invoice
Include your late payment clause in the footer. Clients who see it upfront pay faster — they know you mean it.
Send a payment reminder before the due date
A friendly 3-day-before reminder catches genuinely forgotten invoices without damaging relationships. Automated tools (like Chaser) do this automatically.
Invoice for the late fee separately
Send a separate 'Late Payment Interest Invoice' referencing the original invoice number. Make it official. Include the statutory rate calculation.
Escalate via email, then phone
After 14 days overdue: email to finance + CC the original contact. After 30 days: phone call. After 45 days: formal Letter Before Action.
Small Claims Court (UK: up to £10,000)
UK Small Claims Court costs £35–£455 depending on debt size. The prospect of court action alone usually triggers payment.
Debt collection agency
Agencies typically take 15–25% commission but get results. Worth it for debts over £500 you've been chasing for 60+ days.
FAQ
Can I charge a late fee if I didn't mention it on the original invoice?▾
In the UK, yes — statutory interest applies automatically for B2B debts under the Late Payment of Commercial Debts Act 1998. For consumer debts or in other jurisdictions, you generally need prior notice in your contract or invoice terms.
What if my client refuses to pay the late fee?▾
You can pursue it via Small Claims Court or a debt collection agency. In practice, many freelancers waive the interest to close the relationship, then add tighter terms for future work. Automatic follow-up (before it gets this far) is more effective than chasing after the fact.
Should I actually charge the interest or just use it as a deterrent?▾
Both are valid strategies. Some freelancers include the clause purely for psychological effect (and rarely invoice for it). Others charge it every time, which trains clients to pay on time. The 'charge it every time' camp has fewer late payment problems long-term.
Can I charge VAT on a late payment fee?▾
In the UK and EU, interest charges are generally exempt from VAT. However, a 'compensation charge' or 'admin fee' may be subject to VAT. Check with your accountant — the distinction matters for your invoicing.
How does automatic payment chasing compare to manual invoicing for late fees?▾
Automated follow-up (reminders before and after the due date) prevents most late payments from happening in the first place. Tools like Chaser send graduated email sequences automatically — reducing the need to charge interest because clients pay before you have to escalate.
Stop chasing. Start Chasing.
Chaser automatically sends payment reminders before and after the due date — so most clients pay without you having to invoke your late payment clause at all.
Try Chaser free →Free plan includes 3 invoices. No credit card required.