Whether you are a business or an individual, when money is owed to you there's usually a clear deadline specified for when payment is expected to be made. For example, your business invoices will have a payment period detailed on them, and if you've loaned money to a friend then you will have an agreed repayment date or schedule.

But if this date passes and no payment has been forthcoming, can you claim interest on the money owed to you?​
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The ability to charge interest on an overdue invoice or order will depend on the status of your customer and the contractual terms you have agreed that deal with late payment. If you have a contract in place that contains a provision or clause for interest to be charged, then this should be sufficient to add interest to the overdue amount at the agreed rate.

If there is no specific contract in place with your customer that dictates interest charges, you may still be able to claim interest via legislation known as the Late Payment of Commercial Debts (Interest) Act 1998 if your customer is also a business (limited company, sole trader etc.).
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This late payment legislation permits you to charge 8% interest plus the Bank of England base rate on overdue debts owed by your business customers (B2B). You can begin charging interest as soon as payment becomes overdue, and if no payment date was documented or agreed payment is classed as late 30 days from the customer receiving your invoice or delivery of the service/product.

There are some exceptions and additional items that can be claimed as part of this legislation, so please read our full guide on claiming interest on unpaid invoices. Alternatively you may wish to instruct business debt recovery solicitors who will be able to calculate your late payment interest and compensation entitlement on your behalf.
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If the customer whose payment is overdue is an individual and not a business, there is no statutory right to charge interest on the amount. So, unless you have an agreed contract or terms of business in place that specifies additional charges will be made in the event of late payment, no interest is able to be added to the debt until court proceedings are started.

When dealing with debts incurred by consumers (and sole-traders) it is also important to comply with the Pre-Action Protocol for Debt Claims. Failure to do so before commencing court proceedings may result in sanctions being imposed on you, likely in relation to court costs.

If you are owed money as an individual such as through a private sale, shared bills or a personal loan, there is no entitlement to claim interest on the debt unless you have a signed contract or agreement that permits it.

For example, in the case of lending money ideally you will have documented the arrangement in a loan agreement which should have a provision for any interest and what occurs in the event of the borrower defaulting on their repayments.

Without a written contract interest is not able to be added to a personal debt prior to court proceedings being started.
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Regardless of the status of the debtor and the absence of a right to contractual interest, if you get to the stage of issuing a court claim to recover the debt, interest will often be able to be added to the amount owed.

Section 69 of the County Courts Act 1984 permits interest to be added to most non-commercial debts at the rate of 8% per year. This is a statutory interest rate and you can usually claim it from the date the debt was due up to the date you issue the claim.

At the point of issuing court proceedings, other court fees and costs can also be added to the amount that is being claimed. However, note that interest as with any other element of a claim is awarded at the discretion of the court.

The applicable interest is just one of the items that needs to be considered and calculated as part of a court claim for a debt. Therefore, it is always advisable to seek early legal advice if you are contemplating pursuing a substantial debt.
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Non or late paying customers are unfortunately a fact of life for most small to medium businesses. While at best delayed payments can be annoying, at worst they will have a measurable and detrimental impact on the smooth running of your business.

Recent figures via the Official Statutory Register of Judgments has given an insight into the potential scale of the problems around business debts and disputes that have been escalated to the courts. The data shows that in the third quarter of 2018 there was a 32% increase in the number of County Court Judgments (CCJs) issued against businesses.

That's over 10,000 court judgments per month registered against businesses in England and Wales, with an average value of £3,072 each.

While there are fixed fee debt recovery services available to deal with most size B2B debts, needless to say it's more important than ever to make sure you have effective procedures in place for protecting cash flow in your business.

So, we wanted to share some of the proactive general advice that we've provided to our clients after helping them recover business debts owed to them.​

​Make sure you know who you are doing business with. Be aware of the size of the organisation and whether they are a partnership, sole trader, limited company or PLC. Check if they use a trading name and if the person instructing you has the authority to do so on behalf of the business you will be ultimately be invoicing?
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Make use of public services such as Companies House to verify your private limited company customers. When first considering doing business with them, verify their registered office, company number and trading status. Then throughout your relationship recheck periodically and be alert to warning signs such as overdue accounts, charges being registered against them or large drops in cash reserves which may indicate their business is struggling.
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Whenever possible try to request payment in advance or at least a deposit. Invoice as soon as the order is completed or agree to do so at regular intervals if it's a lengthy job.
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Include standard payment terms within your T&Cs and on your invoices, ensuring they are clear and reasonable. Make customers aware of these terms before they order, when you provide a quote and when an invoice is at risk of becoming overdue. Your invoice should also include details on how to pay you, such as your bank account or online payment information.
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For large or regular transactions consider getting a contract drawn up and signed by both parties. At the very least ensure the main points of the order or transaction are in writing with evidence that it has been agreed by each party.
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If you ever end up having to consider legal action, good record keeping will pay dividends. Everything from the original order, proof of delivery and late payment chases should be kept. Your solicitor will want written evidence and a chronology of events to proceed with a claim, so keep copies of any emails and notes of any telephone calls.
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Implementing the above tips may help in reducing the chances and impact of late paying business customers. But even with the most vigilant owner, on-the-ball accounts team and strictest terms and conditions, you will still encounter customers that simply choose not to pay.

So your next step is to consider formal legal action to recover the amount owed, which usually starts with sending a Debt Recovery Letter Before Action.
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Having robust Terms & Conditions, a consistent approach to invoicing, and a clear paper trail will help you get what's owed to you that much quicker and assist your legal claim should you ever need to get a solicitor involved.

When you are owed money, hindsight can be a wonderful thing.

All too often in the rush to complete a business transaction or lending money to a friend in need, you won't think to put in place a legally binding agreement that formalises the arrangement beforehand. After all, you have every intention of holding up your end of the deal and so assume the other party will too.

But if payment doesn't happen and your deal starts turning into a dispute over what is owed, you may need to consider what legal avenues are open to you to get your money back.

The success of any legal action will then depend on what evidence you can provide to show that the debt is owed.

Yes, but the 'burden of proof' will be on you as the Claimant to show that the amount you are claiming is due. Court should be your last resort in attempting to recover your money and so you should be confident that you have a strong case, sufficient evidence and follow the set pre-action procedure prior to issuing a claim (e.g. sending a letter before action, attempting negotiation etc.)

Ultimately the decision on who owes what will be down to a judge's ruling based on:

1. The applicable law (i.e. breach of contract)
2. The evidence that you can provide
3. The evidence supplied by the defendant/debtor
4. The balance of probabilities

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In the absence of a written contract or agreement being in place, there are various other pieces of information that you may be able to secure which can provide evidence that the money is due.

Bounced cheque or returned direct debit
While the use of cheques is diminishing, hundreds of millions of cheques are still issued every year. If your debtor has sent you a cheque that bounced or agreed to a direct debit that has been returned, it is often all the evidence that you need to prove a debt is owed.

In law a cheque is considered a 'promise to pay' and so can be used as a clear admission that money is due.

Unpaid invoices
Most businesses use invoices to request payment so providing copies and proof of them being issued to a customer or supplier will go a long way in proving that a debt is owed, even if they aren’t directly attached to Terms of Business or a contract.

Furthermore, if you provided regular statements of the amounts owed and showing overdue, then these will also be useful as evidence.

Evidence of chasing debts
Once a payment is overdue you will have hopefully contacted the person or company to chase the debt.

Emails, letters, texts or messages exchanged on social media (Facebook, Twitter etc.) can all be used to help prove a debt is owed and overdue.

If the other party has responded to you apologising or asking for more time, then this admission will be extremely valuable in proving that they don't dispute that they actually owe the debt. So, it's important that you save or screenshot these messages in the event they are needed.

Loaned money without a contract
Without an I.O.U. or a loan agreement in place, proving that money provided to someone was a loan that needs to be repaid can be difficult. This is because often money given to friends or family is considered a gift and so isn't required to be paid back.

Enforcing a verbal agreement that money is owed will hinge around providing evidence to show that the cash was transferred as a loan along with any repayments e.g.

• A bank statement showing a transfer or cheque to the person's bank account
• Repayments received into your account that stopped
• Your account history that large cash gifts are not made to the person on a regular basis
• Evidence of your income, outgoings and savings showing it's unlikely that you could afford to give the amount as a gift

Witnesses to the arrangement
When little or no documentation exists to prove a debt, having an independent witness to a verbal contract can be invaluable.

For example - with a business transaction, did an employee take the order over the phone, deliver goods or perform a service where payment was verbally agreed with the customer? If money was lent to a friend, was another person present to witness the agreement of how/when they were going to pay you back?

But even if an independent witness isn't available, you as a claimant can also present your version of events to the court in a written witness statement. Any witnesses may then need to attend court should the claim go all the way to a hearing.
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Without a written agreement, there should still be plenty of information that you can pull together to prove what you are owed. However, if the other party disputes the amount, or that any debt is owed at all, then you may have a fight on your hands that needs to be settled in court.

It will then be down to the evidence you can gather and how your claim is pleaded to convince a judge that you are entitled to the money owed in the absence of a legally binding written contract. So, obtaining legal advice on the evidence needed for a debt recovery claim and your prospects should be your starting point.
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