Can I charge interest on overdue debts?
Your contract may specify a credit period and how interest will be charged on overdue payments. In addition, commercial debts are covered by the Late Payment of Commercial Debts (Interest) Act 1998. Where there are no written terms of credit, this allows interest to be charged at a set rate from the end of a notional 30 day credit period.Similarly, your contract may specify your right to recover any costs of collecting overdue debts; and for commercial debts, the legislation allows specified amounts for 'reasonable debt recovery costs' (eg up to £40 for debts less than £1,000).
In practice, however, few firms ask for payment of interest (or debt recovery costs) under the legislation unless the dispute has reached the courts. If you do intend to charge interest and collection costs on overdue debts, your best course is to make this clear, in writing - in your terms and conditions, quotations, acknowledgments, invoices and so on.
