Invoice Payment Terms: Net 14, Net 30, Net 60 and the Late Payment Act
Statutory rights, clear wording, and practical strategies for UK businesses
Late payment costs UK SMEs an estimated £684 million per year in unnecessary financing costs. Understanding your statutory rights under the Late Payment of Commercial Debts Act 1998 and using clear, enforceable payment terms on every invoice is your first line of defence.
Statutory interest rate
8% + base rate
Applies to B2B debts after agreed or statutory payment period
Statutory payment period
30 days
Default where no terms are agreed; 60 days max for public authorities
Fixed late payment charge
£40–£100
Compensation per late invoice under the 1998 Act; amount depends on debt size
Limitation period
6 years
To pursue unpaid invoices through UK courts (5 years in Scotland)
Understanding Payment Terms
Payment terms define when an invoice is due for payment. The most common formats are Net 14, Net 30, Net 60, and EOM (End of Month), where the number indicates the number of days from the invoice date by which payment must be received. For example, 'Net 30' means payment is due 30 days after the invoice date.
Clear payment terms protect your cash flow, set customer expectations, and establish the legal trigger point from which statutory interest begins to accrue on late payments. Vague terms such as 'payment within a reasonable time' are enforceable but create disputes — precise terms prevent arguments.
In the UK, B2B payment terms are governed primarily by the Late Payment of Commercial Debts Act 1998, as amended by the Late Payment of Commercial Debts Regulations 2002, which implemented EU Directive 2000/35. Post-Brexit, the Act remains in force unchanged.
Common Payment Terms Explained
| Term | Meaning | Best suited for |
|---|---|---|
| Net 7 | Due 7 days from invoice date | Urgent or project-end invoices; digital services |
| Net 14 | Due 14 days from invoice date | SME service businesses; professional services |
| Net 30 | Due 30 days from invoice date | Standard B2B; most common UK commercial term |
| Net 45 | Due 45 days from invoice date | Larger clients; manufacturing supply chains |
| Net 60 | Due 60 days from invoice date | Large corporates; public sector (legal maximum) |
| EOM | Due at the end of the month of invoice | Clients paying in monthly batches |
| Net 30 EOM | Due 30 days after the end of month of invoice | ~45–60 day effective period; common in retail |
| Due on receipt | Immediate — due when invoice delivered | Deposits, one-off or pre-agreed payments |
| CIA (Cash in Advance) | Paid before goods/services delivered | New customers; high-value or bespoke work |
The Late Payment of Commercial Debts Act 1998
The Late Payment of Commercial Debts Act 1998 (LPCDA) gives businesses the right to claim statutory interest and compensation when another business or public authority pays a commercial debt late. It applies automatically — you do not need to include specific wording in your contract, though clear terms help establish the due date.
The statutory interest rate is 8% per annum above the Bank of England base rate, calculated on a simple (not compound) basis from the day after the due date until payment. For example, if base rate is 5.25%, the late payment rate is 13.25% per annum.
In addition to interest, you are entitled to a fixed compensation amount per overdue invoice: £40 for debts under £1,000; £70 for debts of £1,000–£9,999.99; £100 for debts of £10,000 or more. These amounts cover debt recovery costs and do not need to be justified — they are a statutory entitlement.
Fixed Compensation Under the Late Payment Act
| Debt amount | Fixed compensation | Purpose |
|---|---|---|
| Under £1,000 | £40 | Covers basic debt recovery administrative costs |
| £1,000 – £9,999.99 | £70 | Middle band — partial cost recovery |
| £10,000 and over | £100 | Larger debts — still a fixed (not percentage) amount |
| Any amount | Plus statutory interest at 8% + base rate | Calculated daily from the day after due date |
Maximum 60 Days for Public Authorities
Where the customer is a public authority (local council, NHS trust, government department), the Late Payment Act caps agreed payment terms at 60 days. Any contractual term exceeding 60 days is void, and the 60-day maximum applies automatically. For private sector contracts, there is no statutory cap — though a term exceeding 60 days may be challenged as grossly unfair under s.8 of the Act.
Default Invoice Payment Terms Wording
Include this wording (or a version tailored to your business) on every invoice and in your terms of business:
PAYMENT TERMS
Payment is due within 30 days of the invoice date ("Due Date").
If payment is not received by the Due Date, interest will accrue on
the outstanding amount at 8% per annum above the Bank of England base
rate under the Late Payment of Commercial Debts Act 1998, from the
day after the Due Date until the date of payment.
In addition, a fixed compensation charge of £40 / £70 / £100
(as applicable under the 1998 Act) will be added to the overdue
invoice to cover debt recovery costs.
Ostoya Accountancy Limited reserves the right to suspend services
for overdue accounts and to refer unpaid debts to a third-party
collection agency or to pursue recovery through the courts.
Bank details:
Account name: Ostoya Accountancy Limited
Sort code: XX-XX-XX
Account no: XXXXXXXX
Reference: [Invoice number]What To Do When an Invoice Goes Overdue
- 1
Send a polite reminder at 3 days overdue
A brief, friendly email: 'Just checking in — Invoice [number] for £[amount] was due on [date]. Please let us know if there are any queries or if this has been arranged.' Most late payments resolve at this stage.
- 2
Send a formal demand at 7–14 days overdue
A more formal letter or email referencing the invoice number, amount, due date, and stating that statutory interest is accruing. Attach the invoice again. Keep a copy.
- 3
Add statutory interest and compensation
Calculate the daily interest (debt × (8% + base rate) ÷ 365) and add the fixed compensation. Issue a supplementary invoice or updated statement showing the total now due.
- 4
Final notice at 30 days overdue
State clearly that if payment (including interest and compensation) is not received within 7 days, you will pursue recovery via the small claims court or a debt collection agency.
- 5
Small Claims Court (up to £10,000)
Use Money Claim Online (MCOL) to file a claim for debts up to £10,000. The fee is modest (£35–£410 depending on claim value) and is usually recovered as part of the judgment.
- 6
Debt collection or solicitor (over £10,000)
For larger debts, engage a specialist commercial debt recovery firm or solicitor. Many operate on a no-win-no-fee or fixed-fee basis for straightforward cases.
Negotiating Payment Terms: Dos and Don'ts
Do
- Agree terms in writing before starting work — in your engagement letter, quote, or contract
- State the due date clearly on every invoice (e.g., 'Due by 15 April 2024')
- Include your bank details on every invoice to remove payment friction
- Offer a small prompt payment discount (1–2%) for payment within 7 days if cash flow allows
- Review payment terms for new clients — require CIA or Net 7 until creditworthiness is established
- Charge interest consistently — inconsistent enforcement undermines your legal position
Don't
- Agree to 60+ day terms from smaller clients without cash flow mitigation (invoice finance, etc.)
- Send invoices late — your payment clock doesn't start until the customer receives the invoice
- Accept verbal payment commitments — get revised due dates in writing
- Waive interest without getting something in return (e.g., immediate part payment)
- Mix up payment dates — 'end of month following invoice' on Net 30 EOM effectively means 45–60 days
- Ignore persistent late payers — patterns are warnings about creditworthiness
Invoice Finance: An Alternative for Slow-Paying Sectors
If your clients routinely pay on 60+ day terms and this creates cash flow stress, invoice finance (factoring or discounting) allows you to release 80–90% of the invoice value within 24 hours of issuing it. The finance provider collects the full amount from your client and charges a fee. It's not right for everyone, but it can be transformative for construction, manufacturing, and recruitment businesses. Ask us whether it suits your situation.
Payment Terms for UK Tax Purposes
For VAT purposes, the tax point is the earlier of the invoice date or the date goods/services were delivered. Payment terms do not affect the tax point — VAT is due to HMRC on the return covering the tax point, not the payment date (unless you use the Cash Accounting Scheme, in which case VAT is due when payment is received).
For corporation tax and income tax, income is recognised on an accruals basis — when the invoice is raised, not when it's paid. Long credit terms do not defer your tax liability. If bad debts are written off, you can claim a deduction in the accounting period of write-off, subject to conditions.
Under Making Tax Digital for Income Tax Self Assessment (MTD ITSA, launching April 2026 for turnover over £50,000), clear invoice records with dates, amounts, and payment dates will be essential for digital record-keeping compliance.
Invoice Payment Terms FAQs
Can I charge interest on a late invoice without putting it in my contract?
Yes. The Late Payment of Commercial Debts Act 1998 gives you a statutory right to claim interest and compensation regardless of what your contract says — unless the contract contains a 'substantial remedy' that adequately compensates for late payment. In practice, not having interest terms in your contract just means you rely on the statutory defaults. It's always better to include express terms.
What is the current statutory late payment interest rate?
The rate is 8% per annum above the Bank of England base rate. As of early 2025, with base rate at around 4.75%, the late payment rate is approximately 12.75% per annum. It is calculated on a simple (not compound) basis from the day after the due date.
Can a large company impose 90-day payment terms on me?
For private sector contracts, there is no absolute statutory cap, but a term that is 'grossly unfair' to the supplier can be set aside under s.8 of the Late Payment Act. In practice, challenging 90-day terms requires legal action. Practically, negotiate before accepting the contract — once you've agreed to terms, changing them is difficult.
Is there a difference between the invoice date and the tax point?
The tax point (for VAT) is the earlier of the date goods/services were delivered or the invoice date. For services that are continuous or completed in stages, the tax point is the invoice date (if invoiced within 14 days of completion). Payment date is not the tax point — VAT is due on your return covering the tax point period, not when payment arrives.
Can I charge both interest and the fixed compensation under the Late Payment Act?
Yes. The Act allows you to claim both. The fixed compensation (£40, £70, or £100) and the daily interest accrue separately and are both due from the day after the payment deadline. You can issue a credit note or supplementary invoice to formalise the additional amounts — or include them in a final demand letter.
What should I do if a client disputes an invoice to avoid paying?
If the dispute is genuine, deal with it — issue a credit note or correction. If the dispute appears tactical (raised only when chasing), respond in writing with your position and set a short deadline. Do not waive interest while a tactical dispute is active. Keep all correspondence — if you escalate to court, evidence of a pattern of delay strengthens your position.
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