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Interest rate increase - what it means for debt recovery

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On 2 November 2017 the Bank of England reversed the drop in interest rates which came into effect on 2 August 2016. This means the base interest rate is back up to 0.5%, a level first introduced in March 2009.

What does this mean for your entitlement to interest on bad debts?

Late Payment of Commercial Debts (Interest) Act 1998

If the debt is owed to a business by a business in relation to goods supplied or services provided, you may have a statutory entitlement to:

  • charge interest at the rate of 8% above base rate on all debts that are not paid within trading terms. Since the recent rise in base rate, the current statutory interest rate is 8.5% per annum;
  • charge a fixed sum of between £40 and £100 by way of compensation for late payment for each unpaid debt; and
  • claim other reasonable costs not covered by the above compensation.

You do not have to issue proceedings to be entitled to recover these amounts. Your entitlement arises as soon as a debt is overdue. You could, for example, issue a claim just in the value of the interest, compensation and recovery costs, if you wish to do so.

Contractual Interest

If your contract specifies an interest rate, then you are bound by those terms. This applies whether you have traded on standard terms and conditions or you have a written contract that is signed by both parties.

As part of our fixed-price Pre-action Stage, we will consider the relevant clauses contained in your contract, calculate your full entitlement to interest and add this to the sum we are pursuing.

County Courts Act 1984, Senior Courts Act 1981.

The County Courts Act and Senior Courts Act allow claims for interest at 8% per annum when issuing proceedings.  There is no right to this type of interest unless, and until, a claim is issued.

The same legislation also allows you to recover interest at the rate of 8% per annum on any County Court judgement debt in excess of £5,000. There is no statutory interest on judgment debts of less than £5,000. However, if the judgment is transferred up to the High Court for enforcement, interest at 8% per annum applies from the date that it is transferred.

We apply the above wherever there is no other entitlement to interest.

Your entitlement to apply contractual or statutory interest is not compulsory. However, we assume that if you are using our services, you would want to recover as much as you can. Therefore, we will always include a claim for interest, late payment compensation and recoverable costs for eligible debts, unless you tell us otherwise!

If you have any queries regarding you entitlement to recover interest, please do not hesitate to contact the Debts team on 01775 764156.