Many businesses only think about commercial debt recovery costs after the debt has already become a problem.

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By that stage, time has already been spent chasing commercial debt, checking accounts, reviewing messages, preparing reminders and deciding whether the commercial debtor is worth pursuing. The commercial debt may still be recoverable, but the business may not have protected its recovery position as well as it could have done through clear payment terms, credit-control wording and a structured recovery process.

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Business Legal Advice helps by checking whether the commercial debt qualifies for statutory late payment interest, fixed compensation and additional reasonable recovery costs. Where the statutory basis is available, those sums can be included in the debtor-facing calculation, so your business is not simply asking for the unpaid commercial debt alone.

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Any additional recovery costs are assessed case by case and must remain reasonable, proportionate and connected with recovering the qualifying commercial debt.

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In commercial debt recovery, this matters.

Where the commercial debt qualifies, the Late Payment of Commercial Debts (Interest) Act 1998 can give your business more than a claim for the unpaid debt. It may allow statutory interest, fixed compensation and, where the fixed sum is not enough, additional reasonable recovery costs.

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This is not automatic. Each debt must be checked. The debtor must be acting in business, the debt must appear to qualify, any dispute must be considered, and the recovery-cost position must be reasonable, proportionate and commercially sensible.

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How Business Legal Advice helps your business

 

1. Checking whether the commercial debt qualifies
Your business should not add statutory charges automatically. Business Legal Advice checks whether the commercial debt appears to arise from a qualifying commercial contract and whether the debtor was acting in the course of business. 

2. Calculating statutory interest and compensation
Where the commercial debt qualifies, statutory late payment interest and fixed compensation can be calculated under the Late Payment of Commercial Debts (Interest) Act 1998.

3. Assessing additional reasonable recovery costs
Where the fixed statutory compensation does not meet the reasonable cost of recovery, Business Legal Advice assesses whether additional recovery costs may be included under section 5A(2A).

4. Putting the recovery-cost position to the debtor
Where justified, the commercial debtor can be shown a clear calculation covering the principal debt, statutory interest, fixed compensation and any additional reasonable recovery costs.

5. Checking dispute and enforcement risk
A strong calculation is not enough if the commercial debtor has a genuine dispute or no realistic route to payment. The evidence, commercial debtor status, dispute risk and commercial value should be checked before escalation.

6. Reducing future recovery risk
Where the paperwork is weak, Business Legal Advice can identify future risk points in payment terms, invoice wording, credit-control steps and recovery-cost wording so your business is better protected next time.

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When the Late Payment Act may apply

The Late Payment of Commercial Debts (Interest) Act 1998 applies to qualifying commercial debts arising from contracts for the supply of goods or services.

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The key point is that both sides must usually be acting in the course of business. This means the Act is directed at business-to-business debts, not ordinary consumer debts.

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In practice, this is not always obvious. A debtor may appear to be a private customer, but the goods or services may have been ordered for business purposes. A customer may ask for the invoice to be issued to a business, use the service for trading activity, or pay through a business account for tax or accounting reasons. In other cases, a commercial client may pay from a personal bank account, even though the debt still arises from a business arrangement.

These details can affect the recovery route.

 

Before statutory interest, fixed compensation or additional reasonable recovery costs are added, the status of the debtor and the purpose of the transaction should be checked carefully.

 

Where the statutory conditions are met, the supplier may be able to claim:

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• statutory late payment interest;

• fixed statutory compensation;

• additional reasonable recovery costs where the fixed compensation is not enough.

 

This can strengthen the recovery position before a Letter Before Action, settlement proposal or County Court claim is considered.

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Statutory interest on late commercial payments

For qualifying business debts, statutory interest is generally calculated at 8% above the Bank of England base rate.

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This is simple interest. It is usually calculated on a daily basis from the date interest begins to run until payment, settlement or judgment.

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The correct start date matters.

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If there is a written payment date, interest may run from after that date. If there is no clear payment date, the statutory default period may need to be considered.

This is why invoices, terms, purchase orders, emails and payment history should be checked before the calculation is sent to the debtor.

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Fixed statutory compensation under section 5A

Section 5A provides fixed statutory compensation where statutory interest begins to run on a qualifying commercial debt.

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The fixed compensation is based on the size of the unpaid debt.

Debt less than £1,000
Fixed compensation: £40

Debt of £1,000 or more, but less than £10,000
Fixed compensation: £70

Debt of £10,000 or more
Fixed compensation: £100

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This compensation is separate from statutory interest.

It is not a contractual penalty. It is a statutory sum connected with late commercial payment.

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Where there are several qualifying unpaid invoices or debts, each debt should be checked carefully. The correct compensation band depends on the value of the relevant qualifying debt.

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Additional reasonable recovery costs under section 5A(2A)

Section 5A(2A) is important because fixed compensation does not always cover the real cost of recovering the debt.

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If the supplier’s reasonable costs of recovering the debt are not met by the fixed statutory compensation, the supplier may also be entitled to recover the difference between the fixed sum and those reasonable costs.

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In simple terms:

Additional reasonable recovery costs = reasonable recovery costs minus fixed statutory compensation already claimed

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This is where Business Legal Advice may assist your business.

The additional recovery-cost position is assessed case by case.

 

It may include reasonable recovery work connected with the qualifying commercial debt, such as:

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• reviewing the invoice or debt bundle;

• checking the contract and payment terms;

• identifying the correct debtor;

• assessing whether the debtor is acting in business;

• checking whether a genuine dispute has been raised;

• calculating statutory interest;

• calculating fixed compensation;

• preparing a debtor-facing recovery calculation;

• preparing a recovery letter or Letter Before Action;

• reviewing debtor correspondence;

• preparing the matter for the next recovery step.

 

The costs must still be reasonable, proportionate and connected with recovery of the qualifying debt.

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The debtor is not automatically responsible for every cost simply because payment is late. The recovery-cost position must be capable of explanation if challenged.

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How recoverable costs may be presented to the debtor

Where the commercial debt qualifies and additional recovery costs are justified, the debtor-facing demand may include:

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• Principal debt

• The commercial debt owed.

• Statutory interest

Late payment interest under the Late Payment of Commercial Debts (Interest) Act 1998.

 

Fixed statutory compensation

The statutory sum of £40, £70 or £100, depending on the size of the qualifying debt.

Additional reasonable recovery costs.

A further sum assessed case by case where the fixed compensation does not cover the reasonable cost of recovering the debt.

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The commercial benefit is that the cost of recovery may be shifted, at least in part, onto the debtor where the statutory conditions are met.

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However, this must be done carefully. If the debtor disputes the debt, raises a genuine defence or challenges the costs, the recovery-cost position may need to be reviewed before further action is taken.

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Why terms and internal recovery process still matter

The statutory late payment regime can be useful, but it should not be the only protection.

Many businesses do not protect recovery costs before the problem happens. They trade on unclear payment terms, rely on informal messages, issue invoices without clear due dates, or have no structured reminder and escalation process.

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That can make recovery slower, more expensive and easier to dispute.

 

As part of a commercial debt recovery assessment, Business Legal Advice may identify future risk points in the business paperwork, including:

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• unclear payment dates;

• missing written terms;

• poor evidence of acceptance;

• weak invoice wording;

• no late-payment wording;

• no recovery-cost wording;

• inconsistent reminder process;

• unclear dispute response procedure.

 

The immediate aim is to recover the current debt where commercially sensible.

The wider aim is to help your business reduce the risk of the same problem happening again.

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Practical point before claiming recovery costs

Statutory interest, fixed compensation and reasonable recovery costs can improve the pressure and commercial value of a debt recovery claim.

But they should be used carefully.

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Before adding them to a demand, settlement proposal or Letter Before Action, your business should check:

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• whether the debtor is acting in business;

• whether the debt arises from a qualifying commercial contract;

• when payment became late;

• whether statutory interest is correctly calculated;

• which fixed compensation band applies;

• whether additional recovery costs are reasonable;

• whether the debtor has raised a genuine dispute;

• whether further action is commercially sensible.

 

A strong commercial debt recovery position is not built by adding charges automatically.

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It is built by checking the debt, applying the correct statutory route, explaining the calculation clearly and choosing a recovery strategy that has a realistic route to payment.