Interest on commercial debts

An update - March 2010

It is important to remember that since 2002 all business owners and managers have been able to claim reasonable debt recovery costs and a penalty rate of interest on late debt payments under the Late Payment of Commercial Debts (Interest) Act 1998.

Businesses should ensure they take full advantage of these provisions as they can be very useful negotiating tools when recovering debts.

Rate of interest

Unless there is a contractual rate of interest specified in the terms of business, there is a legal entitlement to charge a fixed additional amount depending on the level of the debt and to charge interest, currently calculated at 8% above base rate.

A reference rate is now used to determine the late payment interest rate, which is fixed for a six-month period, being either 1 January to 30 June (based on the rate at 31 December), or 1 July to 31 December (based on the rate at 30 June).

So for a debt that fell due on 30 September 2009 you would apply the penalty rate applicable at 30 June 2009.

The applicable interest rates which can be applied for the last 15 months are as follows:

For debts falling due

1.1.09 to 30.6.09                                   10%

1.7.09 to 31.12.09                                 8.5%

1.1.10 to 30.6.10                                   8.5%

Costs

A fixed amount can be added on to each unpaid debt.  The current figures are: 

For debts of
up to £999.99                                       £40.00

£1000.00 to £9999.99                         £70.00

£10,000 +                                            £100.00

For further information please contact Richard Gore, a partner in the Commercial Litigation department on +44 (0)117 906 9424 or richard.gore@gregglatchams.com