With
more and more businesses feeling the pinch in the current
financial climate it is taking longer to obtain payment of
invoices. John Abbott explores the possibility of claiming
interest on invoices that have are not paid on their due date.
An entitlement to claim interest
can come from any of three possible sources:
| 1 |
Your
terms and conditions. Well prepared terms and conditions
should make provision for an entitlement to interest
if an invoice is not paid on its due date. The terms
and conditions should set out the rate of interest to
be claimed. Providing the terms and conditions have
been properly incorporated into the contract then you
would be entitled to claim interest as a contractual
right at the rate provided for in the terms and conditions. |
| 2 |
The
Late Payment of Commercial Debts (Interest) Act 1998.
Even if you do not have terms and conditions you may
nevertheless be entitled to claim interest on unpaid
invoices. The rate currently applicable under this legislation
is 8% above base rate. This is a statutory right to
claim interest on invoices that are not paid by their
due date. |
| 3 |
Court
Interest. Interest can be charged on the issue of proceedings
in the High Court or the County Court to recover a debt.
The present court rate is 8% and interest will run from
the date that the debt was due until judgment or the
debt is paid. |
Under
1 and 2 above you do not have to wait until proceedings are
issued to claim interest, you can simply issue a demand or
an invoice or series of demands or invoices for the interest.
You will be able to sue not only on the principal debt but
also on the interest claimed. In theory, if the principal
debt has been paid late, you can still pursue the interest
on it separately.
Interest
under 3 can only be claimed once proceedings have been issued
for the principal debt.
Claiming interest under terms and conditions or under The
Late Payment of Commercial Debts (Interest) Act 1998 has the
advantage of putting an interest claim before a late payer
without the need to issue proceedings and if the late payer
can see that interest is running, may be persuaded to pay
debts promptly. Of course, in reality, the bargaining power
of a large and valuable customer may mitigate against pursuing
a claim for interest against it.
