Can I Charge Interest on Late Payments?

Did you know that you can charge interest on unpaid invoices? It’s a completely legal way to recover compensation on money owed to you – as well as a great incentive some debtors need to pay their debts before being charged more.

In this blog, we’re explaining the law when it comes to charging interest on late payments, and the benefits of doing so.

What does the law say on this matter?

The Late Payment of Commercial Debts (Interest) Act 1998 permits businesses to charge interest by law, stating the following:

• “Statutory interest starts to run on the date after the relevant date for the debt, at the rate prevailing under section 6 at the end of the relevant day.” – Section 4(2)
• “The relevant day for a debt is:
  • where there is an agreed payment day, that day, unless a different day is given by subsection.
  • where there is not an agreed payment day, the last day of the relevant 30-day period.” – Section 4(2A)

This legislation allows businesses to charge a late payment interest rate of 8% plus the Bank of England base rate on overdue invoices or bills. In addition, you can still charge late payment interest on overdue charges even if it’s not detailed in your contract terms.

What are the benefits of charging interest on late payments?

There are many benefits of charging interest on late payments, including:

• Faster payments: Customers may be more likely to pay on time if they know they’ll be charged interest.
• Better cash flow: By reducing late payments, businesses can have a more consistent cash flow.
• Receive compensation: Businesses can earn back some of the money that they have lost due to late payments.
• Peace of mind: Knowing the law is on your side when it comes to charging interest on late payments can give you peace of mind when trading.

Ultimately, regardless of whether you choose to charge interest on late payments or not, implementing a clear and enforceable late payment policy strengthens your business’s financial foundation.

How can I charge interest on late payments?

If you’re looking for support with recovering debts and/or charging interest on overdue invoices, don’t hesitate to get in touch. We can help take the stress and confusion away!

Get in touch by calling 0800 009 6106 or emailing hello@mydebtrecovery.co.uk.