Interest, Compensation And Costs: What You Can Claim On A Late Construction Payment
In construction, a late payment rarely arrives alone. Applications get queried, final accounts drag on, and retentions sit for months after the job is done. By the time an invoice is finally paid, the delay has often cost the business far more than the invoice amount shows. What many contractors and subcontractors don't realise is that UK law lets you claim for part of that cost.
In short: under the Late Payment of Commercial Debts (Interest) Act 1998, a business that is paid late by another business can generally claim three things on top of the original invoice: statutory interest at 8% above the Bank of England base rate, fixed compensation of £40, £70 or £100 per invoice depending on its size, and reasonable recovery costs where those exceed the fixed amount.
Does It Apply To Construction Work?
The Act applies to contracts between businesses for the supply of goods or services, which covers most construction and subcontract work. It doesn't cover payments owed by consumers.
The rights apply by default. You don't need to have written them into your subcontract, although the parties generally can't contract out of them unless the contract provides its own substantial remedy for late payment.
1. Statutory Interest
Interest is charged at 8% above the Bank of England base rate. It's simple rather than compound, and it builds up daily from the date payment was due until the invoice is paid. The base rate used is the one in force at set points in the year, so it's worth checking the current reference rate before calculating a claim.
The calculation is: invoice amount × (8% + base rate) ÷ 365 × number of days late.
2. Fixed Compensation
On top of interest, you can claim a fixed sum for each overdue invoice, based on its size:
£40 for debts under £1,000
£70 for debts from £1,000 to £9,999.99
£100 for debts of £10,000 or more
This is claimed per invoice, not per customer. On a project with several overdue applications or invoices, each one can carry its own compensation sum.
3. Reasonable Recovery Costs
Where the reasonable costs of recovering a debt are higher than the fixed compensation, you can generally claim the difference as well. This applies to contracts made since March 2013. The costs need to be reasonable, and they can include things like professional recovery or credit control fees.
For a small subcontractor chasing a main contractor, this matters. Chasing costs time and money, and the law allows some of that cost to be passed to the late payer rather than absorbed by you.
A Worked Example
The following is purely for illustration, assuming a combined interest rate of 12%. The real rate depends on the Bank of England base rate at the time.
A £10,000 invoice paid 60 days late would accrue about £197.26 in interest (£10,000 × 12% ÷ 365 × 60). Add £100 in fixed compensation and the debtor owes roughly £297.26 on top of the original £10,000, before any further recovery costs.
Retentions And Disputes
Two things come up more often in construction than most sectors. The first is retentions: where a retention has fallen due for release and hasn't been paid, it's an overdue payment like any other, and the same principles can often apply.
The second is disputes. A genuine dispute over whether the money is actually due can affect your right to interest and compensation until it's resolved. That makes records important: keep applications, valuations, certificates and correspondence in order, so you can show clearly what was due and when.
It's also sensible to make your intention clear. Including late payment terms on your invoices, and telling a customer in writing that you intend to claim interest, avoids arguments later.
What's Changing
The Small Business Protections Bill (also known as the Commercial Payments Bill) proposes mandatory statutory interest on late payments with no opt-out, a 60-day payment cap, and a ban on withholding retention payments in construction contracts. It is still progressing through Parliament and isn't law yet, so the current rules above still apply.
Don't Leave It On The Table
Overdue invoices and retentions often get written off or left to drift, and the interest and compensation that could have been claimed go with them. If you have overdue invoices or retentions that a client or main contractor isn't responding to, specialist construction debt recovery can help you pursue what you're owed, including interest and costs where they're due.
This article provides general information only and isn't legal advice.
FAQs
Can I charge interest on a late construction invoice automatically? For qualifying business-to-business debts, the right to statutory interest applies by default, and you don't need a contract term for it. It's still sensible to state it on your invoices and tell the customer in writing that you're claiming it.
How is statutory interest calculated? At 8% above the Bank of England base rate, as simple interest, accruing daily from the date payment was due. The formula is invoice amount × (8% + base rate) ÷ 365 × days late.
How much compensation can I claim per invoice? £40 for debts under £1,000, £70 for debts from £1,000 to £9,999.99, and £100 for debts of £10,000 or more, per overdue invoice.
Can I also claim the cost of chasing the debt? Where your reasonable recovery costs are higher than the fixed compensation, you can generally claim the difference.
Does it apply to overdue retentions? A retention that has fallen due and hasn't been paid is an overdue payment, so the same principles can often apply. A genuine dispute over the amount can affect the position until it's resolved.
