The Rate of Interest

The Rate of Interest Calculations

The law gives you the right to charge interest at the Bank of England base rate plus 8%. Understand the rate of interest below.

For example, if the base rate is 0.5%, you could charge interest at 8.5%.

Rates for calculating interest are fixed for six-month periods

The base rate on 31 December is used for debts becoming late between 1 January and 30 June. The rate in force on 30 June is used from 1 July to 31 December.

FAQ on Rate of Interest for Unpaid Invoices

What is the rate of interest for unpaid invoices in the UK?

In the United Kingdom, the statutory rate of interest that can be charged on unpaid invoices is 8% per annum above the Bank of England base rate. This rate is set by the Late Payment of Commercial Debts (Interest) Act 1998. For example, if the Bank of England base rate is 0.5%, the annual interest rate would be 8.5%.

Why is there a rate of interest for unpaid invoices?

The rate of interest for unpaid invoices serves several purposes:

Incentivising Timely Payment: It encourages debtors to pay their invoices promptly to avoid additional charges.
Compensation for Delay: It compensates the creditor for the inconvenience and financial strain caused by the delay in payment.
Penalising Late Payment: It acts as a penalty for the debtor, making it less attractive to delay payments.

When does the rate of interest for unpaid invoices start to accrue?

In the UK, interest on unpaid invoices starts to accrue from the day after the payment is due, as specified in the invoice or contract. If no due date is specified, it starts 30 days after either:

The date the invoice was issued, or
The date the goods or services were delivered (whichever is later).

Can the rate of interest for unpaid invoices be waived or reduced?

Yes, the rate of interest can be waived or reduced if both parties mutually agree to it. This should be documented in writing to prevent any future disputes. Typically, this can be achieved through negotiation or mediation between the creditor and the debtor.

What happens if the debtor fails to pay the invoice with interest?

If the debtor fails to pay the invoice, including the accrued interest, the creditor may take legal action to recover the debt. This can include:

Issuing a County Court Claim: The creditor can file a claim in the County Court to obtain a judgment against the debtor.
Engaging a Collection Agency: The creditor may hire a collection agency to pursue the debt on their behalf.
Statutory Demand: If the debt is significant, the creditor might issue a statutory demand, which can lead to bankruptcy proceedings if ignored.

Is it legal to charge interest on unpaid invoices?

Yes, it is legal to charge interest on unpaid invoices in the UK under the Late Payment of Commercial Debts (Interest) Act 1998. The law provides a clear framework for when and how interest can be applied, ensuring that creditors are compensated for late payments.

Additional Resources

• Late Payment of Commercial Debts (Interest) Act 1998: GOV.UK

• Guidance on Charging Interest: GOV.UK – Late commercial payments: charging interest and debt recovery

This comprehensive FAQ should provide clarity on the rate of interest for unpaid invoices and its implications in the UK. If you have further questions, feel free to ask!

You can also claim reasonable debt recovery costs

You can claim £40 for debts of less than £1,000, £70 for debts between £1,000 and £10,000 and £100 for debts of £10,000 or more.

If your costs are higher than this (for example, if you are using a debt collection agency) you can claim ‘reasonable’ recovery costs.

You can only claim these costs if you are claiming the interest due under the Act. If you do not claim interest, or you claim it under a contractual provision or the provisions of a different Act, you cannot claim the costs.If your costs are higher than this (for example, if you are using a debt collection agency) you can claim ‘reasonable’ recovery costs.

The Rate of Interest