Late payment is not cost-free for the debtor, and it should not be cost-free for the creditor to address. Where a commercial transaction qualifies, the Late Payment of Commercial Debts (Interest) Act 1998 can provide for interest at a rate set by reference to the Bank of England base rate, together with fixed compensation per invoice, and in some circumstances reasonable recovery costs.
Entitlement is not automatic. Contractual terms providing a substantial remedy for late payment can displace the statutory scheme, and the position depends on the parties, the agreement and the transaction.
Contract first
We check what the contract or terms of business actually provide before relying on the statutory position, so that what is demanded from the debtor is defensible.
Accurate calculation
Interest is calculated to the correct dates on the correct principal, with part payments and credit notes accounted for. Figures presented to a debtor should withstand scrutiny.
Commercial use of interest
Interest and compensation are also a negotiating instrument. In the right case, a properly evidenced claim creates a reason for the debtor to settle the principal promptly.
Common questions
- Can we always add 8% above base rate?
- No. That is the statutory position for qualifying commercial debts where it has not been displaced. The contract, the transaction and the parties all need to be checked first.
This page is general information about our services and does not constitute legal advice. Every matter is assessed on its own facts and contractual documentation.