Interest on Late Payments

4. When is a Payment Late?

Under normal circumstances, you will have agreed with your customer when payment should be made.

4.1 A payment is late if it is made after the last day of the agreed credit period.

• Agreements may be verbal or in writing. Verbal agreements are harder to prove.

4.2 If there is no agreed credit period, the law sets a default period of 30 days.

• You can charge interest 30 days after you delivered the goods or provided the service, or 30 days after you notified the purchaser of the amount of the debt - whichever is the later.To notify the purchaser of the amount of the debt, you should ideally send an invoice. But any other form of notification would do, including a phone call - though that might be difficult to prove if there is a dispute.

4.3 Where a standard practice on payment has become established, this is accepted - in the absence of any other agreement - as the credit period.

• For example, if the purchaser usually pays you on the last Friday of the month after the month in which you send your invoice, this is when the credit period will end.

4.4 The exact wording of your agreement will determine when interest can start.

• If you have agreed on part payments triggered by the completion of part of the work - for example, finishing the foundations of a building - interest will start running from the day after you have reached that milestone.
• This is not the same as an advance payment or an instalment (which is not tied to a specific milestone). Interest on these starts the day after the goods are delivered or the whole job has been finished.
• Small and medium-sized enterprises, with up to 250 employees, can ask representative bodies - such as the Federation of Small Businesses and the Forum of Private Business - to go to court on their behalf to challenge grossly unfair contract terms used by purchasers which may affect their ability to recover interest on debts.