Top Service News
It’s our right!
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Why businesses still hesitate to claim what they’re legally owed.
By Phillip King FCICM
I had the privilege of hosting a joint Top Service/CICM webinar a few weeks ago in which we explored the issue of claiming statutory late payment interest and compensation. It’s a subject that fascinates me, so I thought I’d share some thoughts along with useful insights emerging from the webinar.
The right to charge interest on the late payment of commercial debts was introduced by the UK government through the Late Payment of Commercial Debts (Interest) Act 1998. Interest can be charged on overdue invoices at the rate of Bank of England Base Rate + 8%, with a fixed compensation charge of £40, £70 or £100 applicable to invoices (or debts) valued at less than £1,000, £1-10,000, and over £10,000, respectively. It’s applicable to any business-to-business debt, including sole traders and central/local government, and reasonable additional recovery costs can also be claimed.
Despite it being a statutory right, very few businesses apply the charges, and, over the years, I’ve concluded potential reasons for this. Firstly, businesses don’t know about the legislation; secondly, if they know about it, they don’t know how it works. If they know how it works, they don’t know how to claim it and, finally, if all the other boxes are ticked, they’re frightened to claim it because they think they’ll lose their customer.
Despite this reluctance, there are some companies that regularly claim both interest and compensation charges with significant success. Many also apply the charges at invoice, rather than the debt, level, which makes obvious sense unless contractual terms and conditions prevent it.
One example is a company that automatically includes a claim for the interest and invoice-level charges within all letters before action and estimates a recovery rate in the region of 90%.
The policy was introduced to help offset the costs of debt recovery, and by a recognition that the charges would encourage customers to pay more quickly and push the company up the payment priority list of customers struggling with cashflow. It also made it more likely that payment would be received before things deteriorated further and led to a likely insolvency or bad debt.
Inevitably, objections arise from within the business and from customers, and communication and education are key to overcoming these. Making customers aware at every stage that they will face additional charges on unpaid invoices reduces the surprise factor, and involving internal commercial departments throughout the process pays dividends. There are times when the commercial team are uncomfortable and wants the charges to be waived. When that happens, there can be a negotiation, or the team can be invited to ‘sponsor’ the charges on a customer account.
Perhaps surprisingly, there are relatively few occasions when a customer is lost. When it happens, it’s more likely that the supplier doesn’t want to continue trading and makes the decision to terminate the relationship. In any event, until the interest and charges have been recovered, the account remains on hold and a review is carried out to determine next steps. This means the decision remains where it should – with the supplier.
Top Service, which claims late payment interest and charges for many clients, concurs that education and communication are the two most important factors in successfully recovering the charges alongside principal debts. Encouragingly, they are noticing a gradual increase in construction suppliers doing so, as they are provided with information and advice on appropriate collection strategies
As so often stated in these pages, the importance of communication cannot be over-emphasised. If customers know what to expect and the consequences of their non-payment are made crystal clear from the earliest opportunity, then a successful outcome is so much more likely.
On 24 March 2026, the Government published its response to the 2025 Late Payment Consultation, which includes a number of proposed legislative measures addressing late payment. One of these is the plan to introduce mandatory interest for invoices paid late by large companies to their small counterparts. Large companies will automatically have to add interest when paying invoices late, so doesn’t that make this article irrelevant and overtaken by events? No, it doesn’t, for three primary reasons.
Firstly, the legislation will only apply to large companies buying from small, and often the worst culprits of late payment are small and medium-sized businesses. Secondly, the devil will be in the details in setting out what exceptions are allowed, how compliance will be enforced, and a host of other issues that will have to be considered. Thirdly, the drafting of the legislation and then negotiating parliamentary time to get it into statute will take considerable time.
In the meantime, the law gives us the right to make these charges, so why don’t we use them more, if only to help offset the costs of collection activity? And what better way is there to motivate customers to pay more quickly?
The webinar took place on 5 March 2026, and the recording is available in the resources area of the CICM website. It includes a number of more detailed and specific questions raised by attendees.
Philip King FCICM is a non-executive director at Top Service Ltd