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 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 Commercial Payments Bill, announced in the King's Speech on 13 May 2026 as the Small Business Protections (Late Payments) Bill, goes further: it caps payment terms in commercial contracts (60 days for large businesses, 30 days for public authorities), makes statutory interest mandatory on late commercial payments, and gives the Small Business Commissioner new powers to fine persistent late payers. It is not law yet, and the main provisions are not expected to take effect before 2027, so nothing changes for you today.
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.
Late fees are for business customers
The statutory interest and fixed compensation Adfin applies come from the Late Payment of Commercial Debts (Interest) Act 1998, which covers commercial transactions between businesses. They are not intended for invoices to private individuals. Adfin does not check whether a customer is a business, so it is up to you to enable late fees only where charging them is appropriate. If an agent covers a mix of businesses and individuals, consider moving the individuals to an agent that has late fees turned off. If you are unsure where a customer falls, please take your own advice before enabling the skill.
How Adfin late fees work
The seven sections below cover how the fee is worked out, when it is applied, what your customer sees, and what it costs.
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 each 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 interest from the original due date, so your customer is charged the correct statutory amount from day one. The grace period, covered in the next section, controls when the fee itself is applied.
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 is paid to you, and the fixed compensation is paid directly to Adfin.
2. How to use grace periods
The grace period is the number of days Adfin waits before applying a fee. It runs from the later of the invoice due date or the first time you send the invoice with Adfin - so if you import an invoice that is already overdue, the grace period starts when you first send it, not on the original due date.
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.
Good to know: the grace period only affects when the fee is applied. Statutory interest is still calculated from the invoice due date, so waiting out the grace period does not reduce what a late-paying customer owes.
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 an enhanced skill within your customer agent.
The skill only appears on agents that collect by On Demand. If you cannot see it, check the agent's preferred payment method.
To find the settings, click Customer agents in the side menu, open the agent you want to change, then scroll to the Skills section and expand the Late fees row.
From the customer agent's settings you can:
Enable or disable late fees
Set a custom grace period per customer agent
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, you can waive it. To do this, select the invoice in the payments table and select Waive late fees.
7. Pricing
Any statutory interest accrued is paid to you. There are two charges to be aware of 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.