Interest on Commercial Debts
If your business has overdue debts, your primary concern is going to be recovering the outstanding amount. On the other hand, that will not compensate you for being kept out of your money. For that, you also need to recover interest.
The Late Payment Legislation
The main way to recover interest on these debts is to rely on the Late Payment of Commercial Debts (Interest) Act 1998. This adds an implied term in business-to-business contracts for the supply of goods and services, giving you a right to interest, as well as a fixed sum and your reasonable costs of recovering the debt.
Under the late payment legislation, interest is set at 8% over the Bank of England Base Rate. This is simple interest, so is not compounded. Remember that it will only apply from the date the invoice is due for payment. There is a default period of 30 days on current debts, though this can be varied to some extent under the contract – again there are limits on the freedom of parties to do this.
Also, the rate will depend on the period during which the debt is outstanding. At present it is 13.25%, as the base rate is 5.25%. If you have older debts, you will have to calculate the interest in sections, going back to the date it was first due. You can find out historical base rates from the Bank of England website. You can then use our Simple Interest Calculator to find out how much interest the debt has accumulated during each section.
Even if the late payment legislation applies, you can sometimes agree different terms anyway. Some businesses still use standard terms that are not as favourable as the late payment legislation – in which case you may want to have them looked at. In other cases, you may be forced by customers to trade on their terms. In those cases, you may have to follow the contractual terms. However, if they are too unfavourable, a court may find they do not offer a substantial remedy, and in that case the late payment legislation still applies.
When the Late Payment Legislation does not apply
Finally, not all contracts are covered by the late payment legislation – for example if they are not for the supply of goods or services. In those cases, you may be able to recover statutory interest at 8%. In other cases, a court may award interest at its discretion. In those situations, an express contractual clause can be really useful.
How to get started when you have a debt to recover
Use our Simple Interest Calculator to find out how much interest the debt has accumulated.
Then if you need help recovering a business or commercial debt, fill in an enquiry form or call us to find out more about the Longmores Fixed Fee Debt Recovery Scheme.