Claiming interest on late payment of commercial debts
Getting paid on time is essential to enable your business to balance it’s cash flow and ensure you keep your accounts in the black. In an ideal world, your customers would always uphold their contractual duties and invoices would be paid on time. Unfortunately this is not always the case. According to a recent BACS survey, small and medium sized businesses are owed a staggering £35 billion in late payments.
So if a business client is late in paying their invoices to you, can you charge interest on top of the amount owed to you?
The answer is yes. So how much interest will your late paying customers have to pay?
The interest rate payable depends on whether you have included a contractual clause that sets out what interest rate is payable on late payments. If there is such a clause then that rate will be payable on all late payments. If there isn’t such a clause then the statutory rate of interest will apply.
The statutory rate of interest is set out in the Late Payment of Commercial Debts (Interest) Act 1998, which states that an interest rate of 8% over the base rate of the Bank of England will apply on all commercial debts. The interest normally starts to run from 30 days after it was due and claimed. Statutory interest applies on all commercial debts, but it does not apply when you are selling to the public.
If you have commercial clients who are late in paying their debts to you, always ensure that you claim for the interest that is rightfully due to you. As well as helping to reimburse you for the losses you have suffered from not being paid on time, it gives your customers an extra incentive to ensure that they pay your bills when they are due.