How To Calculate Late Commercial Payment Interest
Update: In August 2023 the Bank of England increased its base rate from 5% to 5.25%. This means you can now claim more interest on your unpaid invoices and we have updated this article accordingly. Interest rates are now the highest they’ve been in 15 years.
If you have ever experienced late commercial payment you will know how frustrating it can be. Late payments have quickly became a huge problem for UK businesses with almost a third of SME having experiencing late payments costing at least £10,000 within 12 months. With the current climate things are expected to have gotten even worse.
Late commercial payments are a real risk to businesses in the UK with 50,000 small businesses going bust due to late payment each year. But there is support available. Legislation is in place to help businesses claim interest, compensation and reasonable costs for recovering commercial debt.
What is The Late Payment of Commercial Debts Act?
The Late Payment of Commercial Debts Act was introduced by the UK Government in 1998 to give businesses a statutory right to claim interest from other businesses for late commercial payment.
The latest amendments to The Late Payment of Commercial Debts Act came in 2013 offering more protection to businesses against late payment.
Late Payment of Commercial Debts Regulations 2013
The 2013 changes to the legislation mean that if no payment date has been agreed then a payment is legally deemed as late 30 days after:
- The customer receives the invoice
- The goods or service is provided, if this is later than when the invoice is received by the customer.
How is late commercial payment interest calculated?
The statutory interest that you can charge another business for late commercial payment is 8% plus the Bank of England base rate for business to business transactions which currently sits at 5.25%. Therefore, the late payment interest you can charge would be 13.25%.
However, it is important to note that you cannot claim statutory interest if there is a different interest rate in the contract agreed between you and your customer.
Here is an example, a £5,000 invoice overdue by 50 days:
If your business is owed £5,000 then the annual statutory interest would be £662.50.
Divide £662.50 by 365 to get the daily interest, which would be £1.81506849.
£1.81506849 daily interest multiplied by 50 days gives £90.75.
£90.75 would be the statutory interest that could be added to a £5,000 invoice overdue by 50 days.
How to charge interest on unpaid invoices
Once you have calculated your interest you will need to send a new invoice to your customer with the interest added on.
The interest you calculate and add is charged on the gross amount including VAT although the interest does not include VAT.
Claiming compensation and reasonable costs
The Late Payment of Commercial Debts Act means businesses can also claim compensation as well as interest on late commercial payment.
The compensation that can be claimed is broken down as follows:
- £40.00 on debts under £1,000.00
- £70.00 on debts under £10,000.00
- £100.00 on debts £10,000.00 and over
As each individual invoice is classed as a debt the compensation can be claimed on each invoice.
Additional reasonable costs can be claimed if the costs of debt recovery are not met by the compensation.
Our free online calculator does the work for you!
Our free online calculator tells you exactly how much late payment interest and compensation you are entitled to! And it takes just seconds.
Find out how much you’re eligible to claim here
Struggling with late commercial payment?
If you are struggling with late commercial payment, then let us help.
Here at Darcey Quigley our team are experts in pre-litigation debt collection. We specialise in telephone commercial debt recovery and have over 25 years of expertise in the area. With a proven track record and professional approach Darcey Quigley are the UK’s most trusted debt collection agency.
Don’t wait on unpaid invoices, take action today and claim back what you’re owed. Call us free on 01698 821 468 or schedule a call with our commercial debt recovery experts at a time that suits you. We’re always on hand to give advice and talk you through your options to recover your debt, interest, compensation and reasonable costs for debt recovery.
Meet our credit management and commercial debt recovery content writer, Declan!
With a keen eye for detail and a passion for educating others, Declan is committed to creating informative and engaging content that empowers readers to get a firner grasp of their credit control to improve their cashflow.
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