Recovering interest on unpaid debts
The types of interest you can charge on unpaid debts and whether you are entitled to claim them back in court.
You have the right to ask your customer to pay interest under three circumstances. Only one sort of interest can be applied at any one time.
Interest permitted by a contract
Interest written into the contract takes precedence over other forms of interest. However, it must amount to a 'substantial remedy'. In other words it should cover the cost of late payment or deter late payment and should be a fair alternative to statutory interest.
Interest claimed on an issued claim form
This is simple interest only and is at a flat rate of 8% unless the court orders a different rate. It only applies if the case is won or is undefended.
The interest runs from when payment was due until judgment is given by the court. If payment is made before judgment, interest stops at that date. In some circumstances interest can be charged after judgment.
Statutory interest on commercial debts
Statutory interest can be claimed under the Late Payment of Commercial Debts (Interest) Act 1998. In some circumstances costs of up to 拢100 can also be claimed.
- The rate of interest is 8% over the Bank of England reference rate - the base rates are set on 30 June and 31 December.
- Statutory interest does not apply when you sell to the public. Both seller and buyer must be acting in a commercial capacity.
- For contracts made since 7 August 2002, all businesses and the public sector can claim against all businesses and the public sector.
- Statutory interest can be claimed after late payment has been received. The limit is six years in Northern Ireland.
- The interest usually runs from 30 days after it was due and claimed. A contract or custom and practice may change this, but only if it gives a substantial remedy.
- A contract can't exclude statutory interest, but it is not compulsory to claim it.
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