Late Payment Interest Letter Template LPCDA 1998

Q: Can I charge LPCDA interest if the customer hasn't agreed to it?

Yes. LPCDA gives a statutory right — no contract clause needed. The right applies automatically to commercial debts.

Q: What if the customer pays the principal but not the interest?

The interest and fixed compensation remain due. You can claim them separately. If small, write it off; if substantial, pursue separately through County Court.

Q: Can I claim solicitor's fees on top of LPCDA?

Yes — LPCDA allows recovery of reasonable costs beyond the fixed compensation. A solicitor's letter (£30–£100) is typically recoverable. A full court action's legal fees are claimable on the larger Fast Track / Multi Track; on Small Claims Track only court fees and limited expenses are claimable.

Q: What if the customer disputes the debt?

The dispute must be substantive (e.g. "the work wasn't done as specified") not just refusal to pay. If genuine, court will decide. If clearly a stalling tactic, file MCOL and proceed.

Q: How long do I have to claim LPCDA?

6 years from the date payment was due (Limitation Act 1980). After that, the debt is statute-barred and cannot be enforced.

Q: Does interest stop when judgment is obtained?

LPCDA interest stops at the date of judgment. After judgment, statutory court interest of 8% per annum simple applies until the debt is paid.

Summary

Late payment is the single biggest cashflow problem for self-employed UK tradespeople. The Late Payment of Commercial Debts (Interest) Act 1998 (LPCDA), as amended by the Late Payment of Commercial Debts Regulations 2002 and 2013, gives B2B suppliers a statutory right to claim interest and reasonable debt-recovery costs without needing to insert clauses into contracts.

The key principles: 8% above Bank of England base rate is the statutory minimum rate (you can contract for higher); £40/£70/£100 fixed compensation is added per invoice; payment deadline is whatever was agreed (or 30 days if no agreement); the right applies to commercial debts only (B2B, not consumer).

For consumer (B2C) work, LPCDA does not apply. Consumer debts are pursued through the Consumer Rights Act 2015 and Small Claims Court process. This guide covers both — a template letter for commercial (LPCDA), guidance on the timing of escalation, and notes on consumer scope.

For broader payment recovery see payment chasing templates and customer not paying final bill.

Key Facts

Statutory interest rate (commercial) — 8% above Bank of England base rate (current base rate June 2026: 5.25%, so total 13.25% per annum)
Fixed compensation — £40 (invoice <£1,000), £70 (£1,000–£9,999), £100 (≥£10,000)
Reasonable recovery costs — additional to fixed compensation; e.g. solicitor's letter fee, agency fees
Payment deadline — as agreed in writing; if not agreed, 30 days from invoice date
Right applies automatically — no need to include LPCDA clauses in invoice or contract
Right does NOT apply to — consumer (B2C) work, government tax debts, insurance claims, family/inheritance debts
VAT on interest — interest is not VATable (HMRC guidance)
Limitation period — 6 years from the date payment was due (Limitation Act 1980)
Recovery via Money Claim Online — for debts £100–£100,000 (Small Claims Court track for ≤£10,000)
Small Claims fees (current 2026) — £35–£70 for issuing claim depending on amount
Court interest after judgment — 8% per annum simple interest until paid
No right to "block" supplier — credit reference agencies record County Court Judgments (CCJs)
Late Payment & Commercial Debts (Interest) Act 1998 — the primary statute
Late Payment Reporting Regulations 2017 — large companies must publish payment practices

Quick Reference Table

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Invoice Value	Fixed Compensation	Statutory Interest Rate	When Charged
Under £1,000	£40	8% + BoE base rate	After payment due date
£1,000–£9,999	£70	8% + BoE base rate	After payment due date
£10,000 and above	£100	8% + BoE base rate	After payment due date
Consumer (B2C)	LPCDA does NOT apply	Contract-specified or court interest only	Court order

Detailed Guidance

Template Letter — Commercial (B2B) LPCDA Interest

[Your Business Name]
[Your Business Address]
[Postcode]

[Date]

[Customer Business Name]
[Customer Address]

Dear [Customer Name],

LATE PAYMENT — INVOICE NO. [INV-XXX] DATED [DD MMM YYYY]

I am writing to remind you that the invoice listed above for £[XXX.XX] has remained outstanding for [N] days beyond the payment date specified.

Under the Late Payment of Commercial Debts (Interest) Act 1998, as amended, I am entitled to claim:

1. Statutory interest at 8% above the Bank of England base rate, currently equating to 13.25% per annum.
2. A fixed compensation sum of £[40 / 70 / 100] (per invoice <£1,000 / £1,000-£9,999 / ≥£10,000).
3. Reasonable costs of recovering the debt where these exceed the fixed compensation.

The interest currently due is:

   Principal: £[XXX.XX]
   Days overdue: [N]
   Daily interest rate: £[XXX.XX] × (0.1325 / 365) = £[X.XX]
   Interest accrued: £[X.XX]
   Fixed compensation: £[40 / 70 / 100]
   TOTAL CLAIM: £[XXX.XX]

I would be grateful if you would settle the principal amount along with the interest and fixed compensation within [7 days from this letter] by transfer to:

   Bank: [Your bank]
   Sort code: [XX-XX-XX]
   Account number: [XXXXXXXX]
   Account name: [Your business name]
   Reference: [Invoice number]

If payment is not received within this period, I reserve the right to pursue the debt through the County Court (Small Claims Track for amounts up to £10,000) without further notice. A County Court Judgment is recorded on credit reference agencies and may affect your business credit rating for up to 6 years.

If you dispute the amount, please reply to this letter in writing within 7 days explaining the grounds of the dispute.

Yours sincerely,

[Your name]
[Your business name]
[Phone number]
[Email]

Calculating the Daily Interest

Daily interest formula:

Principal × (Annual rate ÷ 365) = Daily interest

Example: £1,500 invoice unpaid for 45 days at 13.25% annual rate:

£1,500 × (0.1325 ÷ 365) = £0.5445 per day
45 days × £0.5445 = £24.50 interest
Plus £70 fixed compensation
Total claim: £1,500 + £24.50 + £70 = £1,594.50

If the Bank of England base rate changes during the interest period, calculate interest in two segments (before and after the rate change).

Timing — When to Send

The pre-letter sequence is important:

Day 1 of invoice: send invoice with clear payment due date (typically 14, 21 or 30 days)
Day before due date: friendly reminder email ("invoice X is due on [date]")
Day 1 after due date: first chase email ("invoice X became due yesterday")
Day 14 after due date: formal letter, including statement of statutory rights
Day 30 after due date: send the LPCDA letter above
Day 45 after due date: final notice before court
Day 60 after due date: Money Claim Online filing

Don't escalate too fast — gives the customer no chance to pay. Don't delay too long — the longer overdue, the harder to collect.

Money Claim Online (MCOL)

For debts under £100,000, Money Claim Online (MCOL) is the standard route:

£35 fee (debts up to £300)
£50 fee (debts £300–£500)
£70 fee (debts £500–£1,000)
£80 fee (debts £1,000–£1,500)
£115 fee (debts £1,500–£3,000)
£205 fee (debts £3,000–£5,000)
5% of value for higher amounts

Court fees are recoverable from the defendant if you win.

Filing process:

Set up MCOL account at gov.uk/make-money-claim
Enter customer details (registered office for limited companies; trading address for sole traders)
Specify amount + interest + fixed compensation + court fee
Pay the issue fee
Court issues the claim and serves the defendant
Defendant has 14 days to acknowledge, 28 days to file defence
If undefended: claim succeeds automatically; you can request a CCJ
If defended: matter is referred to Small Claims Track or Fast Track depending on value

Consumer (B2C) Recovery

For consumer debts, LPCDA does NOT apply. Recovery routes:

Letter before action — same structure as above but no LPCDA statutory rate
Pre-Action Protocol for Debt Claims (since October 2017) — requires structured pre-court letter for consumer debts ≥£1,000
Small Claims Court — same MCOL process, but without LPCDA interest
Court interest after judgment — 8% simple interest until paid

The Pre-Action Protocol requires the letter to include:

Amount of the debt
Whether interest or other charges are continuing
How the debt arose (description of goods/services)
A Reply Form (Standard Court Form)
A Financial Statement Form (Standard Court Form)
Information Sheet (Standard Court Form)

This is a substantial template — see GOV.UK "Pre-Action Protocol for Debt Claims" for the full forms.

Limitations and Exclusions

LPCDA does NOT apply to:

Consumer debts (B2C)
Tax debts
Insurance claims
Family Law debts
Wages, pensions
Land sales

Always confirm whether the customer is a business (B2B) or consumer (B2C) before sending an LPCDA letter to a consumer (which would be incorrect).

Late Payment in Contracts

Where a contract specifies a payment deadline, that takes precedence (provided it's reasonable — courts will overturn deadlines beyond 60 days for B2B and 30 days for public sector).

Where the contract specifies an interest rate higher than 8% + base rate, that takes precedence. The contract rate must be 'substantial', typically meaning at least 4% above base rate.

Where the contract specifies a lower rate or no interest, the statutory rate still applies — parties cannot contract out of LPCDA below the statutory minimum.

Common Errors

Sending an LPCDA letter to a consumer (B2C) — LPCDA doesn't apply
Miscalculating interest (using "8%" instead of "8% + base rate")
Forgetting the fixed compensation
Not setting a clear deadline in the letter
Escalating too quickly (no chase emails before formal letter)
Threatening court without filing
Filing court action without prior formal warning

Frequently Asked Questions

Can I charge LPCDA interest if the customer hasn't agreed to it?