Interest on Overdue Bills

If you are running a business one of your priorities is to be paid on time. Many companies are very slow payers indeed. The Government often does not even meet its own payment date targets. The Commercial Debts (Interest) Act has, for several years, given those owed money by other businesses, a right to charge interest and a late payment collection charge, even if there are no written terms of business specifying interest is payable. The right to recover the interest cannot be excluded by a term in the buyer’s standard conditions of purchase either.

James Couzens a partner in Parrott & Coales Solicitors says:

“Although in practice many businesses do not feel they can charge interest because they hope for future business from the customer concerned, sometimes it is useful at least to threaten to charge it. If the parties have really fallen out badly then interest and charges can be collected and added to any debt recovery action. If court action is taken then court fees and some solicitors’ costs in most cases may be recoverable from the person who owes you the money. From my experience if a response is received from the customer after the first letter before action seeking payment of the amount outstanding, solicitors’ costs can usually be recovered from the customer.

From 1st January 2006 the interest rate which businesses can charge for late payment has changed. It is fixed twice each year. The latest change follows changes in the Bank of England’s base lending rate. The late payment interest rate is set twice a year and is calculated by adding 8% to the base rate. It is now 12.5%. So if a business is owed £10,000 from a supplier from the date payment is late, which in many cases is 30 days from the date of invoice it could recover £104/month in interest. In addition a collection charge depending on the amount of the debt can be added from £40 - £100, whether lawyers are used or not.

However all businesses benefit from having written terms and conditions of sale. Even though interest can be charged in any case, with written terms of business drawn up by lawyers, rights to recover the goods if they are not paid for can be imposed and other improvements made to the business’ legal position. We have a designated team at Parrott & Coales assisting and advising businesses on late payment of invoices.”

Please contact:

James Couzens, Clare Suttill or Debbie Rymer at Parrott & Coales for advice on 01296 318500

Email: james.couzens@parrottandcoalesllp.co.uk