In our experience many companies don’t realise or fail to claim their entitlement to interest from their debtors on overdue invoices. Once an invoice becomes due for payment (in accordance with your credit terms, which in most cases are 30 days from the date of invoice) you are entitled to claim interest and late payment collection costs.
If you have terms and conditions in place, these may set out both the circumstances for charging interest along with the applicable rate. If not, you can rely on the Late Payment of Commercial Debts (Interest) Act 1998.
Summary of interest which can be claimed
Contractual interest is at a rate which is specified in your terms and conditions.
Late payment interest is claimed under the Late Payment of Commercial Debts (Interest) Act 1998 and is calculated at the rate of 8% above the Bank of England base rate. All businesses can claim under Late Payment if they do not have a fixed contractual rate.
Statutory interest is calculated at the rate of 8% per annum. Statutory interest is set by the court and has been 8% since 1st April 1993.
If your business were owed £1,000, under the Late Payment of Commercial Debts (Interest) Act you are entitled to:
- the annual statutory interest on this would be £85 (£1,000 x 0.085 = £85)
- divide £85 by 365 days to get the daily interest: 23p a day
- if your invoice is 50 days overdue you are entitled to interest of £11.50 (50 x 23p = £11.50)
Late payment collection costs
You can also charge a business a fixed sum for the cost of recovering a late commercial payment on top of claiming interest from it. The amount you are entitled to charge depends on the amount of debt. You can only charge the business once for each payment.
|Amount of debt||What you can claim|
|Up to £999.00||£40|
|£1,000 to £9,999.99||£70|
These amounts are set by the late payment legislation.