Want to know what interest you can charge on late payments when working as a freelancer, contractor, or small business owner? This article explains what the rules are, and a few ways to get your money from difficult clients.

Get paid what you’re owed

Cash flow is a very personal issue for freelancers, contractors and small businesses, and can sometimes mean the difference between making and missing this month’s rent, or even being able to afford to eat. Your clients might not give two hoots about your financial concerns, but that doesn’t mean they don’t matter.

The best way to avoid late payments is to make sure you invoice promptly and give your clients all the information they need to pay you. Our article on how to invoice your clients has all the information you need, plus we've got you covered with an extensive range of invoice templates to help you make a start.. The current law in the UK allows you to take action on unpaid invoices, allowing you to include additional charges in the amount you claim back from a tardy client.

It’s best practice to agree to strict payment deadlines (as well as any late payment penalties) before you begin working for a new client. However, depending on the nature of your business, you might not always do so.

It’s common practice to set the payment deadline as 30 days from the date the contract is completed (meaning the day you deliver the goods or services you were hired for), even if no payment schedule is decided upon before work begins.

That means there should be no doubt over when your invoice is due to be settled unless you agree to longer terms upfront. Regardless, there’s no reason you should be forced into accepting your client’s payment terms retrospectively if they’re too long to be practical.

{{cta-newsletter}}

Chasing an unpaid invoice

If, in spite of all your efforts, your clients are still late laying, you’ll need to give them a gentle nudge. Sending a reminder can help, but try to keep it civil, after all there may be more work from them in the future.

Make sure that your invoice gets to the right person at the company, and remind them of the agreed deadlines. If you need any more help, our article “How do you chase an unpaid invoice?” has more tips.

If this still doesn’t help, then you need to consider your next steps. It’s possible to charge interest and additional cost on late invoices. 

What additional costs can I claim?

There are three types of costs you can add to overdue invoices to make sure you’re not left out of pocket.

1. Statutory interest

You can charge statutory interest at 8% above the Bank of England base rate on late payments. This applies to business-to-business invoices only, so you can’t normally charge private individuals unless your contract explicitly allows it. Interest starts from the date the invoice became overdue, meaning you don’t need to wait for a fixed date to begin charging.

For example, if the Bank of England base rate on 30th June was 5%, you could charge interest at 13% from the day the invoice became overdue. Remember, the total interest rate changes whenever the base rate changes, so always check the current rate before calculating interest.

You’ll need to send a new invoice showing the interest you’re adding. To make the calculation easier, you can use the Small Business Commissioner’s interest calculator to work out the exact amount.

2. Fixed fees

You can also add statutory fixed fees to cover the cost of recovering your debt:

• £40 for debts up to £999.99.
• £70 for debts from £1,000 to £9,999.99.
• £100 for debts of £10,000 and above.

If the actual cost of chasing the payment is higher than the fixed fee, you can also claim the extra as ‘reasonable costs’. These might include postage, phone calls, or fees charged by a collection agency.

{{st-expense-guide}}

Still having trouble getting paid?

If you’re struggling with a non-paying client, download our series of late payment reminders and get that invoice paid. Choose from ‘polite nudge’, ‘firm reminder’ or ‘final notice’ depending on how overdue the invoice is.

You can also use accounting software like Crunch to make chasing payments easier. Features such as automated follow-ups, invoice tracking, and CrunchPay help you get paid faster without spending hours chasing clients.