Statutory Interest for Late Payment

The law allows for interest to be charged against late payment of commercial debts. This explains how to go about notifying and charging the interest.

Interest on Late Payment and the Law

Statutory interest can be claimed under the Late Payment of Commercial Debts (Interest) Act 1998. The rate of interest is calculated as the Bank of England base rate plus 8% per annum.

Late payment is defined as either being beyond an agreed period from the date of supply or in the absence of that, from the end of the month following that in which the goods or services were supplied. This latter definition is referred to as the default period.

Alternative Rates of Interest

Statutory interest is chargeable from the day after agreed payment terms have been exceeded or if payment terms are absent from the date of written notification that statutory interest is to be claimed.

It is possible to include interest charges for late payment in terms and conditions which do not match the statutory rate of interest or the default payment term. An interest rate that can be viewed by a court as being “excessive” however will not be enforceable. If a lower rate than the statutory rate forms part of commercial terms and conditions, the statutory rate cannot subsequently be applied.

Notifying Interest Charges for Late Payment

As statutory interest for late payment of commercial debts is an unconditional right, prior notification between two trading parties is not required for it to take effect.

Making it clear that statutory interest will be claimed in the event of late payment may well be a good idea to focus the minds of customers on paying your bills on time however.  The following wording is therefore recommended to appear on commercial documents such as order forms, delivery notes, invoices and statements of account.

We reserve the right to apply statutory interest charges for late payment.

You may then choose to overlook interest liability for an initial late payment as a goodwill concession if you wish but then insist on it for subsequent breaches. The fact should never be overlooked however that notwithstanding statutory interest, continuing to deal on a credit basis with consistently late payers could eventually represent a threat to your business.

FAQs
How to calculate liquidity and short-term liquidity How to calculate markup and margin The Truth about Monarch Airlines Labour's Spending over 10 years from 2000 How to make profits and not run out of cash Credit Checking - How to Read Micro or Short Form Accounts Amortisation of Arrangement Fees for Long Term Loans BHS Profits Performance 2010 - 2014 BHS profits, liquidity and cash flows 2009 - 2014 How to Calculate a Free Cash Flow Forecast Campari: How to apply for a bank business loan What are Current Liabilities What are Current Assets Late Payers and Cash Flow What is Operating Cash Flow What is Working Capital How to Read a Balance Sheet Business Planning Cash Flow Calculator Short Term Liquidity Business Liquidity Corporation Tax is not Calculated on Net Profit Small Business Corporation Tax Cash Flow Calculator Using Figurewizard - VAT Using Figurewizard - Sales by Month Using Figurewizard - HP or Instalment Plan Budgets Using Figurewizard - How the budgeted cash flow forecast is calculated Using Figurewizard - Fixed Asset Budgets Using Figurewizard - Calculate Purchase of Goods Using Figurewizard - Forecasting Payments to Suppliers Using Figurewizard - How to Forecast Cash Collection Solvency and the Balance Sheet Property in the Balance Sheet Why Equity is a Liability Asset Management and Liquidity Selling Fixed Assets Contracts: Invitation to Treat What is Deferred Income Loss on the Sale of Fixed Assets Calculating Gross Profit Margin Profit and Loss Statement What is Operating Profit What is Net Operating Revenue What is Equity Profit on the Sale of Fixed Assets How Taxable Profit is Calculated What are Operating Overheads Overheads - Provisions Depreciation