Buy Now Pay Later (BNPL) firm Klarna has announced it will start charging late fees for its service.

The company also revealed it will be launching automatic payments in the UK.

From 16 March, users will be charged a fee of £5 after a seven-day grace period and four reminders. Each fee is capped at 25 per cent of the order value and Klarna said there will be no more than two fees per order.

The late fees will be used to fund the Klarna Customer Recovery Programme, which supports customers who are in arrears. Under the scheme, Klarna will waive 50 per cent of the balance owed by customers.

Klarna said it will not engage a debt collection agency for late-paying customers, instead the business will block them from making additional purchases until they have made a payment of 50 per cent for their outstanding debt.

For the first six weeks after the fees are introduced, customers who agree to take a short financial awareness test in the Klarna app will have their late fee waived.

The BNPL firm said the new measures bring the UK in line with other markets such as the Netherlands and Belgium where it says late fees have improved Klarna’s on-time payments by 20 per cent.

Klarna claims it has taken research from Which? And Citizen’s Advice to ensure that late fees are clearly stated during the customer journey.

Commenting on the news Alex Marsh, head of Klarna UK, said: “Not charging fees feels customer-friendly, but we’re worried it drives the wrong behaviour and our data now shows that a total absence of late fees actually leads to less favourable outcomes for customers: with less reason to pay on time, customers are more likely to fall behind. It’s like a city with no parking tickets; it sounds great, but in practice turns out to not be so great.”

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