Statutory interest and compensation in business to business transactions


The compensation starts at £40 for commercial debts of less than £1,000 and escalates to £100 for commercial debts of £10,000 or more.

Author: Kiril Moskovchuk
Reading time: 2 minutes

This article is 5 years old.

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It is widely known that late payments in business to business contracts attract statutory interest, presently at 8.5% unless another rate is envisaged under the contract.

The Late Payments of Commercial Debts (Interest) Act 1998 stipulates also that the interest will generally start running from 30 days after the goods are received or services provided. The contract may stipulate longer interest free periods, however a period longer than 60 days is very likely to be deemed unreasonable and curtailed to the 60 days’ maximum. The statutory interest can only be ousted when the contracts provides for another substantive remedy.

The less known is the statutory fixed sum compensation under the Act in connection with the debt recovery. The compensation starts at £40 for commercial debts of less than £1,000 and escalates to £100 for commercial debts of £10,000 or more. The full compensation amount falls due largely in the same circumstances when the statutory interest starts to run. It may be useful to rely on the entitlement to the statutory compensation when the debt has only recently fallen due and the statutory interests produces a negligibly small amount. The statutory compensation is the minimum remedy and the actual cost of recovery may be claimed if equates to a higher amount, subject to the common rules applicable to direct and consequential damage.

Kiril Moskovchuk

Legal Advisor

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