Can I claim interest on overdue debts?

A compromise or contractual agreement may allow you to claim interest on overdue payments. The original contract may stipulate credit periods and how interest may be charged when payment runs overdue.

The Late Payment of Commercial Debts (Interest) Act 1998 covers commercial debts, even when there are no agreed terms of credit. The Act allows the charging of interest at a set rate, calculated by the Bank of England base rate in addition to 8% from the end of a credit period (usually 30 days). The same act allows you to recover compensation on each unpaid invoice; £40 for debts less than £1000, £70 less than £10,000 and £100 for all other debts.  In addition, a contract can specify the right to recover costs incurred while chasing overdue debts. This is particularly useful if the debt is £10,000 or less because it will avoid the Small Claim limit for recovering legal costs. Nevertheless, costs are always at the discretion of the court. It should be noted, however, that in practice, generally very few firms enforce interest payments or recovery costs, unless the dispute is taken to court. If you do intend to enforce interest payments on overdue debts, you should make this clear in your contracts.