Late Payment of Invoices (1998)

Interest & Claiming

Updated: Late Payment of Invoices (2002)

So, how do I claim interest when my customer doesn’t pay on time?

If no payment has been forthcoming and the due date has now passed, you should inform your customer. Tell them that you are claiming interest in line with the Act and, if you wish to, you can add how much the daily rate is. Although you can just inform them verbally, it’s a good idea to notify them in writing too, as this can later act as proof of notice. It’s worth including all the information you would include on a standard invoice such as:

  • the amount of the debt (perhaps also the amount of interest owed and the rate at which the interest will continue to be charged).
  • who the payment is payable to
  • by what date o to what address
  • by what method (cash, cheque etc.)

Do I have to claim straightaway?

You don’t have to make a claim straightaway though the older a debt becomes, the less likely you are to get your money. Legally, a supplier in England, Wales and Northern Ireland has six years to make a claim and a supplier in Scotland has five years. Receivers or liquidators may chase its customers for interest on late payment going back over this period. You can also claim interest on a debt even if you are no longer dealing with that customer.

Is it possible to claim interest from customers based overseas?

If the contract has been made under UK law, then yes, the terms of the Act apply. Interest can be claimed from overseas customers.

What interest rate can be charged?

Interest is charged as the base rate (the Bank of England’s official dealing rate) plus 8%. The base rate used should be the rate that is current at the end of the day on which the contract says that payment should be made. This rate is one at which the smallest and most vulnerable businesses are generally able to borrow from banks.

How is the interest calculated?

The interest owed is simple, not compound. You use the following method to work it out: Debt x interest x the number of days late – divided by 365 days. Interest is charged on the gross amount of the debt but VAT is not paid on the interest.

How do I collect the interest?

It is payable by law. If, for some reason, your customer doesn’t pay up you can enlist the help of the courts to recover your debt. Information and advice on court procedures can be found at your county court offices.

What do I do if I receive a claim for interest?

If you have paid a bill late, then you are liable for the interest and the supplier has a legal right to it. To avoid court proceedings for non-payment, settle the bill as soon as possible.

How can I avoid anyone claiming interest from me?

Don’t get involved with a contract that you don’t think you will be able to settle within an acceptable time limit. As well as damaging your reputation with other companies, you may have to pay interest on top of your debt. Arrange mutual payment terms beforehand and query any incorrect/misleading invoices as soon as you receive them. Then, as long as you pay your bills promptly you’ll have nothing to worry about.

Am I liable for claims from suppliers based overseas?

Yes. If the contract has been drawn up under UK law, the terms of the Act apply. An overseas supplier may claim interest from you.

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