Profile information Member settings
Sign up Sign in

Make your Debt recovery letter

Get started

What are the types of interest?

There are two types of interest: contractual and statutory interest.

Contractual interest is found in the agreed payment terms, on the order or in the contract at 4% above the Bank of England base rate. If an agreement does not specify contractual interest, contractual interest cannot be claimed.

Statutory interest allows business creditors to charge interest for late payments if contractual interest is not charged.

If there’s a contractual interest rate, you can only claim statutory interest if the contract, your Invoices, your Terms and conditions or other commercial documentation, expressly reserves the position regarding statutory interest. Check all relevant documents before charging interest.

Think about your relationship with the customer before adding interest or costs, and give them a chance to pay. 

When does a payment become late?

Unless otherwise agreed (eg in your terms and conditions), the law specifies that a payment is late after 30 days for public authorities and business transactions. If a longer payment term has been agreed and the terms are longer than 60 days, the agreement must not be grossly unfair to your business).

The days are counted from the date that the customer received their invoice or you deliver the goods or provide the service (if this is later). 

How to calculate interest

Statutory interest is 8% plus the Bank of England base rate for business-to-business transactions.

You cannot claim statutory interest if your customer is a consumer (ie a private individual not acting in the course of a business). In this case, you can only claim interest if the contract sets a contractual rate.

For example, if the Bank of England base rate is 0.25%, statutory interest for a recent debt would be 8.25%. Check the Bank of England base rate history to determine what the base rate is. 

The calculation for statutory or contractual interest is: (debt x interest rate x the number of days late) /365. 


  • Your business is owed £1,000, you are claiming statutory interest and the Bank of England base rate is 0.25%:

  • the annual statutory interest on this would be £85 (1,000 x 0.0825 = 82.5)

  • divide £82.5 by 365 to get the daily interest of 22.6p a day (82.5 / 365 = 0.226) 

  • after 50 days this would be £11.30 (50 x 0.22.6 = 11.30)

How to recover commercial debt

If you are seeking to recover a debt on a business-to-business or business-to-consumer transaction, you can consider using a Late payment letter. If the debt still remains unpaid, consider following this up with a Second late payment letter. If you want to issue proceedings to recover a debt (which should be a last resort) consider using a Letter before action. Our late payment letters will even calculate the interest due, if you chose to claim it. Before you issue proceedings, consider alternatives to legal action

For more information, read Payment reminders and follow our How to recover debt checklist.

Claim debt recovery costs on late payments

You can also charge a business a fixed sum for the cost of recovering a late commercial payment on top of claiming interest from it. How much you can claim depends on the debt owed and set out in the Late Payment of Commercial Debts (Interest) Act 1998. You can charge: 

  • £40 for debts up to £999.99 

  • £70 for debts between £1,000 and £9,999.99 

  • £100 for debts of at least £10,000

Ask a lawyer

Get quick answers from lawyers, easily.
Characters remaining: 600
Rocket Lawyer On Call Solicitors

Try Rocket Lawyer FREE for 7 days

Get legal services you can trust at prices you can afford. As a member you can:

Create, customise, and share unlimited legal documents

RocketSign® your documents quickly and securely

Ask any legal question and get an answer from a lawyer

Have your documents reviewed by a legal pro**

Get legal advice, drafting and dispute resolution HALF OFF* with Rocket Legal+

Your first business and trade mark registrations are FREE* with Rocket Legal+

**Subject to terms and conditions. Document Review not available for members in their free trial.