Late Payment Compensation Fees UK Explained

When a UK business invoice is paid late, the supplier may be able to claim more than just the original invoice amount. In some cases, late payment compensation fees can also be added to help cover the cost of chasing overdue commercial debts.

These compensation fees are fixed amounts. They are based on the value of the unpaid debt, not on how many days the invoice is overdue. This makes them different from late payment interest, which usually depends on the invoice amount, the applicable interest rate, and the number of overdue days.

This guide explains how UK late payment compensation fees work, when they may apply, how the £40, £70 and £100 bands are used, and what businesses should check before adding compensation to an overdue invoice.

What are late payment compensation fees?

Late payment compensation fees are fixed recovery costs that may be claimed on qualifying overdue commercial debts. They are intended to help compensate the supplier for some of the administrative cost of chasing late payment.

For eligible UK business-to-business debts, the fixed compensation amount is usually based on the size of the unpaid debt.

The standard bands are:

• £40 for debts under £1,000
• £70 for debts from £1,000 to £9,999.99
• £100 for debts of £10,000 or more

These amounts are separate from the original invoice amount. They may also be separate from any statutory late payment interest that applies.

Why do late payment compensation fees exist?

Late payment can create real costs for small businesses. Even when a customer eventually pays, the supplier may have spent time and resources sending reminders, following up by email, making calls, reconciling accounts, or seeking advice.

Late payment compensation fees are designed to recognise that chasing overdue invoices has a cost. They also encourage customers to pay commercial invoices on time.

For small businesses, the fixed fee system is useful because it avoids needing to prove every small administrative cost individually. If the debt qualifies, the compensation band gives a clear starting point.

When can a UK business claim late payment compensation?

Late payment compensation is generally relevant where the debt relates to a commercial transaction between businesses.

It may apply where:

• The debt is owed by one business to another business
• The invoice relates to goods or services supplied
• The invoice is overdue
• The payment terms have passed
• The debt is not a consumer debt
• There is no conflicting contractual recovery cost arrangement that changes the position

This means compensation is most commonly used for business-to-business invoices, not invoices sent to individual consumers.

Before adding compensation, businesses should check the contract, payment terms, and the nature of the customer relationship.

The three UK compensation bands explained

The amount of fixed compensation depends on the amount of the unpaid debt.

£40 compensation fee

The £40 fee applies where the unpaid debt is less than £1,000.

For example, if a business invoice for £750 is overdue and the debt qualifies, the fixed compensation amount would usually be £40.

This can be particularly helpful for small invoices, because the time spent chasing payment can still be significant even when the invoice value is relatively low.

£70 compensation fee

The £70 fee applies where the unpaid debt is from £1,000 to £9,999.99.

For example, if a business invoice for £2,500 is overdue and qualifies, the fixed compensation amount would usually be £70.

This is the middle band and may apply to many common small business invoices.

£100 compensation fee

The £100 fee applies where the unpaid debt is £10,000 or more.

For example, if a commercial invoice for £12,000 is overdue and qualifies, the fixed compensation amount would usually be £100.

For larger debts, the fixed compensation fee may be only a small part of the overall amount claimed, especially if statutory interest is also being calculated.

Is late payment compensation the same as interest?

No. Late payment compensation and late payment interest are different.

Late payment compensation is a fixed fee based on the size of the unpaid debt.

Late payment interest is calculated over time. It usually depends on:

• The invoice amount
• The interest rate
• The number of days overdue
• The payment due date
• The calculation date

For qualifying commercial debts, statutory late payment interest is often calculated at 8% above the Bank of England base rate.

You can estimate interest separately using the UK Late Payment Interest Calculator.

You can estimate the fixed compensation amount using the UK Late Payment Compensation Calculator.

Can you claim both interest and compensation?

In some qualifying commercial debt situations, a business may be able to claim both late payment interest and fixed compensation.

The two amounts serve different purposes:

• Interest compensates for the time value of late payment
• Compensation helps cover recovery costs
• The original invoice amount remains payable separately

For example, a supplier may claim:

• The original overdue invoice amount
• Statutory late payment interest
• Fixed late payment compensation

However, the contract should always be checked first. If the contract contains its own late payment interest or recovery cost wording, that wording may affect what can be claimed.

Example calculation

Suppose a business invoice for £1,500 is overdue.

Because the debt is between £1,000 and £9,999.99, the fixed compensation band would usually be:

£70

This £70 is separate from any interest calculation.

If the invoice also qualifies for statutory late payment interest, the business may calculate interest separately based on the overdue period.

For a quick estimate, use the UK Late Payment Compensation Calculator.

Does the number of overdue days affect the compensation fee?

The number of overdue days does not usually change the fixed compensation band.

The compensation fee is based on the value of the debt, not the length of the delay.

For example, if a qualifying £2,000 debt is 10 days overdue, the compensation band is £70. If the same debt is 60 days overdue, the fixed compensation band is still £70.

However, the number of overdue days does matter for late payment interest. The longer the debt remains unpaid, the more interest may accrue.

Can compensation be added to every overdue invoice?

No. It should not be added automatically to every overdue invoice without checking the situation.

Before adding compensation, check:

• Is the customer a business?
• Is the debt commercial?
• Has the invoice due date passed?
• Are the payment terms clear?
• Does the contract contain its own late payment clause?
• Is the debt for goods or services supplied?
• Is there any dispute about the invoice?

If the invoice is disputed, or if the customer is a consumer, you should be especially careful before adding statutory compensation.

What if the contract has its own late payment clause?

Some contracts include their own wording about late payment interest, recovery costs, or administrative charges.

If your contract already includes a late payment clause, you should review it before adding statutory compensation. A contractual recovery cost arrangement may affect whether statutory compensation is available.

This is similar to the difference between statutory interest and contractual interest. If a contract provides a valid and substantial remedy for late payment, the contractual position may be important.

For more detail, see Statutory Interest vs Contractual Interest in the UK.

How to add compensation to an overdue invoice

If you decide that compensation is appropriate, keep the wording clear and professional.

You may want to include:

• The original invoice number
• The original invoice date
• The payment due date
• The amount still unpaid
• The compensation band used
• The fixed compensation amount
• Any late payment interest calculated separately
• The revised total amount due
• A new payment deadline

It is usually better to explain the charge clearly rather than simply adding a fee without context.

For practical wording, see How to Add Late Payment Interest to Invoice.

How to mention compensation in a reminder email

When writing to a late-paying customer, the tone should be firm but professional. Many overdue invoices are resolved without formal escalation, so clear wording can help avoid unnecessary conflict.

A reminder email may say that the invoice is overdue, payment is required, and late payment charges may be added if payment is not received.

If compensation has already been added, explain the amount and the basis for it.

For a practical example, see the Overdue Invoice Reminder Email Template UK.

Common mistakes to avoid

Businesses sometimes make mistakes when adding late payment compensation. Common problems include:

• Adding compensation to consumer invoices
• Using the wrong compensation band
• Adding compensation before the invoice is overdue
• Ignoring contractual late payment terms
• Failing to explain the fee to the customer
• Confusing compensation with interest
• Showing unclear calculations
• Adding fees to disputed invoices without reviewing the position

A clear process helps reduce mistakes. Check the invoice, the payment terms, the customer type, and the contract before sending an updated payment request.

Late payment compensation for small businesses

Late payment compensation can be useful for small businesses because the cost of chasing overdue invoices is often disproportionate to the invoice amount.

Even a relatively small unpaid invoice can cause cash flow pressure, especially where the supplier has already delivered the goods or services.

Small businesses should consider including clear late payment wording in their terms and conditions, keeping proper records, and using consistent reminder processes.

For more guidance, see Late Payment Interest for Small Businesses in the UK.

Quick summary

UK late payment compensation fees are fixed amounts that may apply to qualifying overdue commercial debts.

The usual bands are:

• £40 for debts under £1,000
• £70 for debts from £1,000 to £9,999.99
• £100 for debts of £10,000 or more

These fees are separate from late payment interest. Interest is calculated based on time overdue, while compensation is based on the value of the debt.

Before adding compensation, check that the debt is commercial, the invoice is overdue, and your contract does not contain terms that change the position.

Related tools and guides

• UK Late Payment Compensation Calculator
• UK Late Payment Interest Calculator
• Statutory Interest vs Contractual Interest in the UK
• UK Late Payment Interest Formula Explained
• Overdue Invoice Reminder Email Template UK
• How to Add Late Payment Interest to Invoice
• Late Payment Interest for Small Businesses in the UK

Disclaimer

This guide is for general information only and does not constitute legal advice. Late payment rights can depend on the contract, the type of debt, and the circumstances of the transaction. If you are unsure whether late payment compensation can be claimed, consider taking professional advice.