It’s always better to have a written contract between parties, setting out the terms and conditions of your business relationship.

A contract will usually provide for the situation where one party breaches a term, or if there is a dispute. It may include a term giving the right to claim interest on outstanding and overdue invoices.

However, on occasions you may forget to send out your terms and conditions, or, even though there is a contract in place, there may be nothing governing interest on late payments.  For both of these scenarios what is the position when a client/customer is late in paying an invoice? Is it still possible to claim interest on the invoiced sum?

The answer is ‘yes’! This is possible under the Late Payment of Commercial Debts (Interest) Act 1998, as amended by the Late Payment of Commercial Debts Regulations 2013. These provide a statutory right to claim interest for those acting in the course of business (business-to-business contracts) for the supply of goods and services.

So when does interest start to run? If there is an agreed date for when payment is due and payment is not made by that date, interest will run 30 days from the date it is due. If no date was set, the Act provides that interest will commence 30 days from when the client/customer receives the invoice, or when the goods are delivered/service is provided, whichever is later.

What is the rate of interest you can claim? The interest you can charge if another business is late paying for goods or a service is eight per cent above the Bank of England base rate.

The base rate on 31 December is the reference rate for debts overdue between 1 January – 30 June each year; the base rate on 30 June will be the reference rate for the period 1 July – 31 December. To calculate the correct interest, check out the Bank of England’s website.

In addition to claiming interest on an overdue payment, it is also possible to claim a fixed sum, dependent on the amount of the debt:

  • Less than £1,000: fixed sum of £40.
  • £1,000 – £10,000: fixed sum of £70.
  • £10,000+: fixed sum of £100

You can also claim reasonable costs in recovering the debt. Where these are in excess of the fixed sum, you can claim the difference.

Although this is the fall back position where the contract is silent or there is no express agreement on late payments, it is always best to ensure that you incorporate such terms and that you have a clause dealing with this situation to avoid any uncertainty – and to protect your cashflow!

For further information please contact:

Dalina Tran, Paralegal, Commercial Dispute Resolution

T: 0161 836 7899

E: Dalina.Tran@gateleyplc.com


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.