If another business is late paying for goods or a service, you can make a claim for that amount and also claim interest and the costs of debt recovery. “The Late Payment of Commercial Debts (Interest) Act 1998” gives businesses a right to claim interest on late payments. Since 2002, all businesses have had the ability to claim interest under the Act from any other business or organisation. Where you have not got an agreement as to when the monies will be paid, the law says payment in respect of business transactions and public authorities is late from 30 days after either the customer receives the invoice or the goods are delivered or service provided (if this is later that the invoice). Agreements made for payment after longer periods between businesses must be fair to both businesses if the period is for longer than 60 days. Statutory interest will accumulate from this date.
The interest you can charge is ‘statutory interest’ and is calculated on a daily basis by reference to the Bank of England base rate plus 8% for business to business transactions. You cannot claim statutory interest if there is a different rate of interest stated in a contract. The base rate is fixed every 6 months on the 30 June and 31 December. Therefore it is important to check what the rate was on the date the debt became owed to you. If the reference rate changes, the amount of interest will need to be apportioned taking account of changes to the rate. The current Bank of England base rate is 0.5% so statutory interest for a recent debt would be 8.5%.
A business can notify orally that interest will be claimed, although a written letter would be more appropriate and should include details of; the full amount owed, including accrued interest; the daily interest rate; the original invoice; who payment should be made to and the payment methods.
You can charge a fixed sum for the cost of recovering a late commercial debt on top of claiming interest from a business. The amounts are set by late payment legislation and will depend on the amount of debt. They are as follows:-
Debts up to £999.99 £40.00
Debts from £1,000.00 to £9,999.99 £70.00
Debts from £10,000.00 or more £100.00
The above amounts are in addition to fixed costs that can be claimed through proceedings in the civil courts in the usual way.
Contractual Interest or Compensation
A specific interest rate or compensation may be agreed between parties in their contract and so they effectively contract out of the Act. The terms agreed must constitute a “substantial remedy”, which means the remedy must be sufficient to compensate for late payment and be fair and reasonable.