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12 January 2023

Are you entitled to claim compensation for late paid invoices?

3 mins

Businesses depend on cash flow in order to make them successful and continue to run. Being paid on time by customers is key to businesses, to allow them to pay suppliers and their staff. Lack of cash flow is one of the reasons many companies fail, and enter into an insolvency process.

Most businesses will have terms and conditions with their customers detailing the time in which invoices should be paid. But, if a customer continually pays your invoices late, then the business may, as well as being able to bring proceedings for payment of the invoices themselves, also be able to bring a claim for interest and compensation pursuant to the Late Payment of Commercial Debts (Interest) Act 1998 (as amended) (the Act).

Under the Act, a business can recover interest and compensation for each invoice that is paid late and outside of any agreed payment terms. As the interest and compensation are payable per invoice, this can quickly add up. 

Interest and compensation are not only available on unpaid invoices, but also available against invoices that have been paid, albeit late and outside of agreed payment terms.

Interest is payable at a fixed rate and is simple interest, not compound. The rate is set twice a year and is based on 8% above the Bank of England’s base rate as of 30 June and 31 December. The current rate of interest is 9.25%.

As soon as interest begins to run, a fixed sum is also payable in addition to the interest on the debt. The amount of the fixed sum compensation depends on the value of debt that is outstanding or paid late:

  • £40 fixed sum for debts/invoices under £1,000
  • £70 fixed sum for debts/invoices of at least £1,000 but under £10,000
  • £100 fixed sum for debts/invoices of £10,000 or more

Careful consideration needs to be given as to whether such a claim is appropriate, especially if you are still trading with a customer who pays their invoices late. Despite your statutory entitlement to interest and compensation, many debtors will not be happy to have to pay an additional sum (in interest and compensation) when they have paid the principal sum under the invoice (albeit late).

Whilst there is no obligation to notify customers that you may bring a claim under the Act if your invoices are paid late, if you fail to raise any concerns about late payment to your customer, any later claim may not be looked upon favourably by the customer, or indeed a Court. Pursuing such a claim could therefore affect your relationship with that customer or other customers within your industry.

However, if you are no longer transacting with that customer or indeed you are an insolvency practitioner seeking to recover monies for unsecured creditors following a company’s insolvency (where an ongoing customer relationship is not important), then pursuing a claim under the Act could be a useful way of recovering monies which are rightfully due to you or the insolvent company.

Our Dispute Resolution team offers expert advice to businesses on the topics covered in this article. To get in touch with the team, submit an enquiry form here, or call +44 (0)20 7833 4433.

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