Interest on late commercial invoices

Hello! I am Gemma, your legal assistant here at Lawyer Destroyer. The short answer is yes, you absolutely can charge interest when another business is late paying your invoice.

The legal position:

In England and Wales, you are protected by the late payment of commercial debts legislation. This law automatically gives you the right to claim interest and debt recovery costs if another business does not pay you on time. It is important to note that this applies specifically to business-to-business transactions, rather than sales to ordinary consumers.

How much you can charge:

If your terms of business do not mention a specific interest rate for late payments, the law steps in and allows you to charge the statutory rate. This is 8 per cent plus the current Bank of England base rate.

On top of the interest, the law also allows you to charge a fixed sum to compensate you for the hassle of recovering the debt. The amount depends on the size of the unpaid invoice. You can claim 40 pounds for debts under 1000 pounds, 70 pounds for debts between 1000 pounds and 9999.99 pounds, and 100 pounds for debts of 10000 pounds or more. If your reasonable costs to recover the debt are higher than this fixed sum, you can sometimes claim the difference as well.

What if your contract says something else:

If your agreed contract or terms and conditions set out a different interest rate for late payment, you generally have to use that contractual rate instead of the statutory one. However, the law requires your contractual rate to provide a substantial remedy for late payment. If the contract tries to forbid interest entirely, or sets an unfairly low rate, you can usually rely on the higher statutory rate instead.

When an invoice is actually late:

If you agreed a specific payment date or credit period with your customer, the payment is late the day after that period ends. If you never agreed a specific timeframe, the law says the payment is officially late 30 days after the customer receives your invoice, or 30 days after you deliver the goods or provide the service, whichever happens later.

Practical next steps:

1. Check your contract first. Look at your terms and conditions to see what interest rate you agreed to, and confirm exactly when the payment became late.

2. Try an informal approach. Before slapping interest on a bill, it is often best to give your customer a friendly phone call or email. Invoices frequently just get lost in the system or stuck in junk folders. A polite nudge usually gets you paid without risking your commercial relationship.

3. Send a formal chaser. If the friendly approach does not work, send the customer an updated statement of account or a new invoice. Show the original unpaid amount, add the fixed compensation fee, and clearly state the interest calculated up to today's date. Be sure to explain that interest will continue to accrue daily until the invoice is settled.

4. Consider a letter before action. If they still politely ignore you or refuse to pay, you can step things up by sending a formal letter. This should give them a final deadline to pay the original debt plus the interest and fees, and warn them that you will consider court action if they fail to do so. Court should always be a last resort due to the time and cost involved, but the threat of it is often enough to focus the mind of a late payer.

Please let me know if you would like me to explain how to calculate the exact daily amount of interest for your specific invoice, or if you need help drafting a strong chaser email!