Don’t Lose Interest: Find out what interest is chargeable on your outstanding invoices

When a customer fails to pay your invoices, it affects your cash-flow and makes it difficult to meet your own obligations. The longer an invoice goes unpaid, the greater its impact on your business.

One way to lessen the impact of late or unpaid invoices is by ensuring you also recover any applicable interest or charges on your outstanding invoices to meet your additional costs of late payment. If properly communicated to your customer, it may also deter late and non-payment.

We’ve prepared this brief note to help you understand when and how you can recover interest and charges on overdue invoices.

Commercial debts

When your invoice relates to a business debt (i.e. you have provided good or services as part of your business and your customer has received them as part of their business), you could rely on the Late Payment of Commercial Debts (Interest) Act 1998 which allows you to ask your customer to pay:

1. Interest at 8% above the Bank of England’s base rate, from the day after your invoice falls due, until it is paid; and
   

2. Compensation on each outstanding invoice, in the sum of:

   • £40 for an invoice in value of under £1,000.

   • £70 for an invoice in value of over £1,000 but under £10,000.

   • £100 for an invoice in value of over £10,000.

Even if you do not include any details of late payment charges on your terms and conditions, you can still rely on your entitlement to claim these sums.

Interest on legal claims

If your invoice (whether a business debt or a non-business debt) remains unpaid and it becomes necessary to issue legal proceedings, can also ask the court to award you interest in addition to the value of any unpaid invoices.

The Court have the power to award interest at a rate that it thinks fit, on all or part of a debt. What rate of interest the Court choose will often depend on a variety of circumstances such as the relevant Bank of England base rate and the conduct of the parties in the legal claim. The Court will usually set out details of any interest awarded separately within their order/judgment.

Even if the Court do not make a specific award for interest, if you are successful in your claim and the court award you over £5,000 for damages, you may still claim interest at 8% on any unpaid court orders/judgments.

Contractual interest

You may want to include details of any late payment charges and interest in your contractual terms and conditions. This allows you to be more certain on what charges/interest will be applied, and when they will be applied. This will also secure your entitlement to claim interest when your outstanding invoices are not a business debt or you want to claim interest without any court involvement.

You will, as with any contractual term, need to ensure that the term is communicated to the customer before they enter into the contact and that it is set out in clear and certain language.

When deciding the amount of any charge and interest, you should be careful to ensure that:

• The interest or charge is not a main purpose of your contract/services;

• The amount or rate is proportionate, and is not excessive; and

• Any amount charged should protect a legitimate interest of your business (for example, that it covers your cost in chasing payment).

It is easy to fall foul of the above criteria, and if you do, there is a risk that contractual clause may not be enforceable. If you need help in drafting an enforceable contractual clause, which allows you to recover charges or interest on late paid invoices, contact us to see how we can help.

Next Steps

This brief guide is prepared to assist our clients on recovering charges and interest on unpaid invoices.

If you would like more detailed advice which is specific to your circumstances; whether you need help drafting your contract or need assistance in recovering payment for your outstanding invoices, we can help.

We offer a free no-obligation consultation to discuss your enquiries, and fixed fee debt recovery services to recover payment of your invoices.