Contracts and deadlines

Late-payment letters: interest, compensation and the final date

3 min read · Checked against the product 3 October 2026

Produce a letter before action from an unpaid valuation: the outstanding sum, interest under the Late Payment Act or your contract’s own rate, fixed compensation, and the checks to make before it goes.

When a sum due is not paid by the final date for payment, a letter before action is the step before adjudication or court. VariationFlow builds it from the valuation, so the sum, the due date and the interest come from the record you already hold. It is a template built from your records, not legal advice.

When to use it

The “Late-payment letter” button appears on a commercial valuation while money is outstanding: the certified sum, or the applied sum where nothing has been certified, less retention and less what has been paid. Use it once the final date has passed and a reminder has gone unanswered. It is not offered on domestic jobs, because the Late Payment of Commercial Debts (Interest) Act 1998 applies between businesses.

How to do it

1. Open the project, find the valuation under Monthly Valuations and choose “Late-payment letter”.
2. Answer the rate question. On a JCT or NEC form the contract has its own interest term, which can take the place of statutory interest under s.8(2) of the Act: enter the full annual rate the contract gives, including any margin over Bank Rate, or leave it empty to reserve interest without a figure. Statutory interest and compensation are then claimed only in the alternative. On other forms, enter the Bank of England Bank Rate in force on the 30 June or 31 December immediately before the day after the final date for payment.
3. The letter opens ready to print on your letterhead: the outstanding sum, with VAT added where your project charges it, interest to date, the fixed compensation, your bank details and seven days to pay.

What the figures are

• Statutory interest is Bank Rate plus 8% a year, simple, from the day after the final date for payment. The rate is fixed by the Bank Rate on the half-year date before the debt fell due and does not move when the Bank does. The product never assumes a rate: you supply it, and the letter names the date to look up.
• Fixed compensation under s.5A is £40 on a debt under £1,000, £70 under £10,000 and £100 from £10,000.
• The final date comes from the project’s payment periods, or from the default notice you served, which can postpone it.

JCT projects: record your periods first

On a JCT project with no payment periods of its own recorded, the letter refuses to state a final date. The JCT main contract’s periods run days earlier than a sub-contract’s, and a letter threatening proceedings over a default that has not happened yet does you harm. Type the due date, payment terms and pay-less periods from your sub-contract into the project’s payment terms, on the edit form or in the contract setup wizard, and the letter will compute.

Before you send it

• Check the Bank Rate against the Bank of England’s published history for the reference date the letter names.
• If a pay-less notice arrived, look at the Payment notices tracker first. A valid one changes the sum due.
• If the debtor is a sole trader, the Pre-Action Protocol for Debt Claims applies, with 30 days and prescribed enclosures.
• If the sum is disputed rather than simply unpaid, take advice before going further: adjudication may be the better route.

Common mistakes

• Using today’s base rate. The Act fixes the rate at the half-year date before the debt fell due.
• Claiming statutory interest as of right on a JCT or NEC job where the contract has its own interest term.
• Sending it before the final date for payment has passed, when there is no default to complain of.