Late commercial payments: charging interest and debt recovery

1. When a payment becomes late

You can claim interest and debt recovery costs if another business is late paying for goods or a service.

If you haven’t already agreed when the money will be paid, the law says the payment is late after 30 days for public authorities and business transactions after either:

  • the customer gets the invoice
  • you deliver the goods or provide the service (if this is later)

You can agree a longer period for payments from one business to another – but if it’s longer than 60 days it must be fair to both businesses.

 

2. Interest on late commercial payments

The interest you can charge if another business is late paying for goods or a service is ‘statutory interest’ – this is 8% plus the Bank of England base rate for business to business transactions. You can’t claim statutory interest if there’s a different rate of interest in a contract.

You can’t use a lower interest rate if you have a contract with public authorities.

The current Bank of England base rate is 0.5%, so statutory interest for a recent debt would be 8.5%.

Check the Bank of England base rate history.

Example

If your business were owed £1,000:

  • the annual statutory interest on this would be £85 (1,000 x 0.085 = £85)
  • divide £85 by 365 to get the daily interest: 23p a day (85 / 365 = 0.23)
  • after 50 days this would be £11.50 (50 x 0.23 = 11.50)

Send a new invoice if you decide to add interest to the money you’re owed.

 

3. Claim debt recovery costs on late payments

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’re allowed to charge depends on the amount of debt.

Amount of debt What you can charge
Up to £999.99 £40
£1,000 to £9,999.99 £70
£10,000 or more £100

These amounts are set by late payment legislation.

If you are a supplier, you can also claim for reasonable costs in recovering debt.

Read more on recovering debt.

 

Author: MixoBiz

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