Late Payment Interest

There is no codified or centralised regulation of the collection of commercial debts and it is unlikely that there will be any regulation to the same extent as there is in the consumer credit sector.

The bargaining positions of parties to a commercial agreement is generally perceived to be more even and do not necessitate any regulation to intervene. In respect of Statutory Demands, the procedure available to set aside is the simplest and most effective method to deal with any actual or alleged imbalances to the relationship between the parties. In relation to ordinary Money Claims through the Money Claim Online system (‘MCOL’), these can only really be looked at on the merits- necessitating, in some cases, a lengthy and expensive examination in Court.

Late payment of commercial debts has been viewed as an inhibitor of business growth, resulting in the Late Payment of Commercial Debts (Interest) Act 1998. More recently, practical initiatives such as the Prompt Payment Code has acquired traction based on the premise that paying suppliers promptly is a marketable trait!

Late Payment Interest and Debt Recovery Costs

The Late Payment of Commercial Debts (Interest) Act allows Creditors to claim interest and debt recovery costs if another business is late in paying for the goods and services provided. The interest rate is pretty impressive, being 8% above the Bank of England Base Rate (currently 0.5% at the time of writing). This is due from the expiry of the ordinary credit period. Where there are no credit terms specified, it will be 30 days from the delivery of the goods/service or invoice (whichever is the later).

The calculation of interest is best conducted on a daily rate basis. The calculation being

(Annual Interest Rate (8% + Base Rate) * Invoice Amount) % 365

In addition, Creditors are also able to charge a fixed sum for the cost of recovering a late payment.

Debt Amount Chargeable Costs
Up to £999.99 £40
£1,000 – £9,999.99 £70
£10,000 or more £100

This affords the Creditor a view that debt recovery activity is a little more cost effective, knowing that a proportion (sometimes all) of the costs associated will be recoverable.

It is interesting to note that the reference, in the legislation, to the delivery of the invoice means that interest and debt recovery costs are chargeable for each invoice that is raised to a Debtor.

It is not uncommon for Creditors to charge Debtors several thousand points in interest and recoverable costs on the basis of a large number of low value invoices raised over a period of time. Indeed, many legal professionals have adopted this legislation as the basis of their charging structure for commercial debt recovery, resulting in a cost neutral proposition for Creditors. Its also a pretty good deal for their advisors (particularly if they are also able to claim costs in the insolvency).

Assuming the Creditor would want to claim debt recovery interest and costs, the calculations (once concluded) should be summarised in the Particulars of Debt section of the Demand. For those using the Part 7 Claim procedure, this will be input in the Particulars of Claim.

It is best to include a statement of account, particularly where there are various invoices attracting different amounts of daily interest.

Calculation of debt recovery interest and costs should follow the following logical process.

Late Payment Interest

Worked Example

Spacely Sprockets Ltd (‘Spacely’) supplied George Jetson & Sons (‘Jetson’) with 10,000 widgets at £8.00 each. Spacely delivered the widgets in 4 equal deliveries (1 January, 1 February, 1 March and 1 April)  and raised an invoice on the day of delivery for £20,000. Spacely has standard credit terms of 30 days from date of delivery.

Jetson didn’t make any payment whatsoever towards the debt and there was never any mention of a dispute. It is currently 1 September 2015 and Spacely wants to issue a Statutory Demand.

The Bank of England Base Rate is currently 0.5%.


Step 1- Calculating Daily Interest Rate

(Annual Interest Rate (8% + Base Rate) * Invoice Amount) % 365 

being equivalent to

(8.5 * £20,000.00) % 365  = £4.66 per day


Step 2- Calculating the number of days overdue

Spacely calculates the number of days between the due date of each invoice and the current date.

Invoice Date Due Date Current Date Number of Days Overdue
01/01/2015 31/01/2015 01/09/2015 213
01/02/2015 03/03/2015 01/09/2015 182
01/03/2015 31/03/2015 01/09/2015 154
01/04/2015 01/05/2015 01/09/2015 123


Step 3 – Apply Late Payment Interest and Debt Recovery Charges

When drafting the Demand, Spacely calculates the following amounts:

Invoice Date Invoice Amount No. of days overdue Interest Debt Recovery Charges
1 Jan 2015 £20,000.00 213 £992.05 £100
1 Feb 2015 £20,000.00 182 £847.67 £100
1 Mar 2015 £20,000.00 154 £717.26 £100
1 Apr 2015 £20,000.00 123 £572.88 £100
Sub Totals £80,000.00   £3,129.86 £400


The amount claimed on the Demand will therefore be £83,529.86 as at 1 September 2015.


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We’re not lawyers. We’re process servers. We are not in the business of giving legal advice. These articles are really to put across our own opinion (why else would we write them?) and should not be relied on as legal advice. If you want legal advice, you should always get a good, expensive lawyer.