Background on late fees
Late payment is a fact of B2B business. UK law gives you the right to charge for it — and that right is about to get significantly stronger.
Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses can charge statutory interest and a fixed compensation amount on overdue B2B invoices.
The Small Business Protections (Late Payments) Bill, introduced in the King's Speech on 13 May 2026, goes further: it caps payment terms at 60 days, makes the statutory interest rate mandatory across all commercial contracts, and gives the Small Business Commissioner new powers to fine persistent late payers. The Bill is working through Parliament now.
Adfin automates the calculation, application, and accounting sync for late fees — so you can use this right without the admin.
When to use late fees
Late fees aren't right for every situation. They change the tone of a relationship, so it's worth being intentional about when to turn them on.
They work well for:
Consistently late payers. Customers who regularly pay 30–60 days past due despite reminders. The fee creates a real cost for the behaviour and often changes it.
Disengaged customers. Where communication has broken down and standard payment reminders aren't landing. A formal late fee notice tends to prompt re-engagement.
Relationships where the dynamic is right. You have the legal right to charge, but use it where the commercial relationship can withstand it — or where it's already under strain.
How Adfin late fees work
1. How the calculation works
Adfin applies the statutory amounts set by the Late Payment of Commercial Debts (Interest) Act 1998. There are two components.
Statutory interest
Interest accrues daily from the original payment due date at the Bank of England base rate plus 8%:
Daily interest = Invoice balance × (BOE base rate + 8%) ÷ 365
Adfin checks the Bank of England base rate eacj day and updates the calculation automatically whenever the rate changes.
Importantly, the interest always runs from the invoice due date — not the date Adfin was set up or the date the fee was applied. If you add an already-overdue invoice to Adfin, we calculate the late fee from the original due date, so your customer is charged the correct statutory amount from day one.
Fixed compensation
A one-off fixed amount is also charged, based on the value of the invoice:
Invoice value | Fixed compensation |
Under £1,000 | £40 |
£1,000 – £9,999 | £70 |
£10,000 or more | £100 |
Both amounts are charged to the late-paying customer.
The interest will be paid to you, the fixed compensation is paid directly to Adfin.
2. How to use grace periods
The grace period is the number of days after the payment due date before Adfin applies a fee.
The grace period does two things. First, it avoids applying a fee to customers who are a day or two late — which would create unnecessary friction in otherwise healthy relationships. Second, it gives time for payments already initiated to clear before a fee is triggered.
You can adjust the grace period per customer agent. Set it shorter for customers with a track record of late payment, or turn it off entirely if you want fees to apply as soon as the due date passes.
3. What the payer sees
When a late fee is active, the total amount shown on your customer's payment link is updated automatically to include it. The customer sees the original invoice amount, the late fee, and the combined total — they don't need to make a separate payment.
As daily interest accrues, the payment link amount updates to reflect the current total each time the customer opens it.
4. How the sync to your accounting software works
When Adfin applies a late fee, it creates a separate invoice in your connected accounting software. This invoice records the fixed compensation and accrued interest at the time the fee was applied.
It appears as a distinct document rather than a line item on the original invoice, so your records stay clean and it's straightforward to see which customers have incurred fees.
You can choose which account the late fee invoice is coded to in your accounting software — useful if you want to track late fee income separately from your main revenue. Select this within your accounting software integration settings in Adfin https://console.adfin.com/settings/integrations.
As daily interest continues to accrue, the late fee invoice is updated to reflect the running total.
5. What happens if a customer makes a partial payment
When a partial payment arrives against an invoice with an active late fee, Adfin allocates the payment to the late fee first, then to the invoice balance.
This means the fee is cleared before the original balance starts reducing.
Good to know: if a payment is reversed, Adfin reverses the allocation in the same order — fee first, then principal.
6. Turning late fees on and managing them
Late fees are configured as a enhanced skill within your customer agent.
From here you can:
Enable or disable late fees
Set a custom grace period per customer
When your customer agent is active, it determines when to apply fees automatically based on your configuration. You don't need to trigger them manually.
If you've decided you no longer want to impose a late fee, then you can easily waive it. To do this, select the invoice in the payments table and select "waive late fee".
7. Pricing
Any statutory interest accrued is paid to you. Two costs apply when you use late fees.
Fixed compensation — the amounts set by the Late Payment of Commercial Debts Act (£40, £70, or £100 depending on invoice value) are charged to your customer and routed to Adfin.
Enhanced skill fee — an additional fee applies when you use a customer agent that has late fees enabled. See enhanced skills fees at adfin.com/pricing for current rates.