Late Payment: Your Legal Rights as a Tradesperson in the UK

What the Late Payment Act actually covers

The Late Payment of Commercial Debts (Interest) Act 1998 (amended in 2002 and again under the Late Payment of Commercial Debts Regulations 2013) gives businesses — including sole traders and self-employed contractors — an automatic right to interest when another business pays late.

The critical word is business. The Act covers B2B transactions only. If you do work for a homeowner or domestic customer, the Act does not apply — you're on standard contract law instead. But if your customer is a limited company, another sole trader, a landlord running a property portfolio, or any commercial entity, you're covered.

The 30-day default and how to change it

Unless your contract says otherwise, payment is due within 30 days of the customer receiving the invoice or the goods/services — whichever is later. After that, your right to statutory interest kicks in automatically without you having to do anything extra.

You can agree different payment terms in your contract — 14 days, 60 days, whatever suits both parties. However, any agreed term longer than 60 days is only enforceable if it's not grossly unfair to you as the creditor. Courts have struck down 90-day and 120-day terms imposed on small suppliers by large businesses.

The practical advice: put your payment terms clearly on every quote, invoice, and in any written agreement. “Payment due within 14 days of invoice” is clear and enforceable.

Interest calculation: a worked example

The statutory interest rate is 8% above the Bank of England base rateat the time the debt becomes overdue. With the base rate at 4.75% (November 2026), that's 12.75% per year — or about 0.035% per day.

Use the government's free late payment interest calculator to get the exact figure for your invoice.

Fixed compensation charges

On top of interest, the Act entitles you to a fixed compensation charge the moment a payment becomes overdue. This is automatic — you don't have to request it:

Recovery costs you can claim

If your fixed compensation doesn't cover your actual costs of recovering the debt, you can claim the difference as “reasonable debt recovery costs.” This covers things like:

• Solicitor's letters or legal fees for chasing the debt
• Debt collection agency fees (typically 10–15% of the debt)
• Court fees for Money Claim Online (£35–£455 depending on claim size)

You can't claim for your own time spent chasing — but you can claim for any third-party costs that were reasonable in the circumstances.

Domestic vs commercial customers — the key difference

This is the most important thing to understand: the Late Payment Act does not apply to domestic customers(homeowners, tenants paying for their own home improvements). For domestic disputes, you're relying on the terms of your contract and, ultimately, the small claims court.

However, many tradesperson jobs sit in a grey area. A landlord who owns a single buy-to-let is running a business. A self-employed builder who hires you as a subcontractor is a business. A company that calls itself a “property management firm” is definitely a business. If in doubt, the Act applies to any customer who is acting in the course of a business — not as a private individual.

How to enforce it: before and after court

Before reaching for the courts, follow these steps in order:

1. Send a formal demand letter— state the invoice number, amount, due date, and that you're claiming statutory interest under the Late Payment Act. Give 7 days to pay.
2. Add interest and compensation — your letter should state the interest accruing daily and the fixed compensation charge. Many businesses pay up at this point.
3. Use a debt collection agency — if the letter is ignored, an agency letter often prompts payment. Fees come out of what you recover.
4. File via Money Claim Online — if all else fails, go to court.

Money Claim Online (MCOL) step-by-step

For debts up to £10,000, the small claims track in England and Wales is straightforward and designed for people without lawyers.

1. Go to gov.uk/make-court-claim-for-money and register for MCOL
2. File your claim — include the invoice amount, interest calculated to the filing date, and your fixed compensation charge
3. Pay the court fee (£35 for claims up to £300; scales up to £455 for claims up to £10,000)
4. The defendant has 14 days to respond. If they don't, you can apply for a default judgment
5. If they dispute it, you'll get a hearing date — usually a simple phone or video call for small claims
6. Once you have a judgment, you can enforce it via bailiff, attachment of earnings, or charging order

Court fees are recoverable if you win. The vast majority of MCOL claims are either paid before the hearing or result in a default judgment — fewer than 10% actually go to a contested hearing.

When to involve a solicitor

For debts over £10,000 (which moves to the fast track or multi-track in county court), or where the customer is disputing the quality of work rather than just not paying, it's worth taking legal advice. Many solicitors offer a fixed-fee debt recovery letter for £50–£150 — often enough to trigger payment without going to court.

If a customer owes you money and is threatening to go insolvent, act fast — creditors of an insolvent company typically receive pennies in the pound, so the earlier you have a judgment, the better your position.