Can you claim interest on your outstanding invoice?
One of the questions that we are frequently asked is “can I claim interest from my debtor, on my outstanding invoice?” The answer is generally ‘yes’ however, you do need to consider the rate of interest that you are entitled to apply. Applying the wrong rate of interest can open the way to a valid defence from your debtor – this will simply delay recovery. It is therefore important to claim interest at the correct rate.
You have the right to ask for interest on unpaid invoices in 3 circumstances.
1. Your terms and conditions may have a clause that claims interest for late payment of invoices. It is surprising how often Companies do not know that they have this clause in their terms and conditions. Contractual interest will be applied by the Court where there is one included in your terms and conditions.
What rate of interest should your terms and conditions claim? It should be enough to deter late payment and should be a fair alternative to statutory interest (see paragraph 2 below). If you are unsure whether the contractual rate applied by your terms and conditions is appropriate, please contact our Rita Wright.
If your terms and conditions are silent on interest, we would recommend that they are re-drafted to include interest as a contractual term. Check your terms and conditions and if you think these need updating, or you would like us to simply look over them to advise you whether they are adequate, please contact our Brendan O’Brien: email@example.com.
2. If your contract is silent on interest, you are entitled to claim interest at the rate of 8% above Bank of England base rate on all invoices from the date the invoice was due. This entitlement stems from the Late Payment of Commercial Debts (Interest) Act 1998 and applies to all business to business debts. You are also entitled to claim compensation from your debtor, on each outstanding. This can substantially increase the amount owed. For letters before action we will calculate the interest and compensation for you and add this to the amount owed. We have found that this is often enough to prompt payment.
3. Finally, if your debt is business to consumer and your terms are silent on interest, you are entitled to claim interest under s69 of the County Court Act 1984 at the rate of 8% from the day you issue Court proceedings.
For Judgment debts over £5,000 you can continue to claim the interest until the debt is paid. Remember you can only claim one type of interest at a time.
A Letter before action to a Debtor claiming payment of the outstanding invoice and interest is often enough to prompt payment.
If you have an outstanding debt, it is worth trying our Low Cost Fixed Fee Debt Recovery Service where we will calculate the interest, add the compensation if you are claiming under the Late Payments Act, and send a letter to your debtor for £4 plus VAT.
If you would like to know more about our Debt Recovery Service please contact our: Rita.Wright@breezeandwyles.co.uk / 01992 558411.