Charging interest on late payment of debts

21 September, 2016

Did you know that you can charge interest on the late payment of commercial debts, even when you don’t have a contract or terms & conditions that provide for this?

The Late Payment of Commercial Debts (Interest) Act 1998 (“the Act”) is a tool that is often forgotten about by businesses that are looking to call in their unpaid debts. As the name suggests the Act applies to business to business transactions and in the absence of any agreement to the contrary it will imply a rate of interest and compensation for late payment. 

The terms of the Act cannot be excluded, but it will only apply if the parties have not already agreed a rate of interest (e.g. in a contract or terms of business).

If the Act applies, interest at the rate of 8% above the Bank of England Base Rate can be charged on any late payments. In addition, the creditor is entitled to a fixed sum of £40, £70 or £100 (depending on the amount of the outstanding debt) or the reasonable costs of recovery, whichever is larger.

Drawing debtors’ attention to your right to recover interest on late payment of debts can encourage prompt payment of debts that are already overdue. Adding the statutory interest and compensation to the total debt will also maximise your return and ensure you are properly compensated for the inconvenience of late payment.

If you require any further information please contact Tom Bourne at