New laws have been introduced which deal with interest rates on commercial debts. These laws cover contracts for the supply and sale of goods and services (but not consumer credit agreements) entered into on or after 7 August 2002. In certain circumstances it allows a creditor or a debtor to rely on a set interest rate. This is set at 8% above the base rate per annum.
How does this benefit a creditor?
Where someone delays payment without good reason and there is no prior agreement about interest, provided certain conditions are met, the creditor can claim interest at the prescribed rate.
There is evidence to suggest that the right to claim this higher rate of interest is not widely known. This suggests that merely notifying a debtor that you intend to claim this interest will be enough to ensure that your debt is given priority.
How does this benefit a debtor?
Debtors who, due to their weak bargaining positions with larger retailers or manufacturers, have been forced to agree high interest rates on late payments, may be able to avoid these high interest rates because, when deciding what rate of interest should apply, a court may ignore the high rate of interest and instead apply the rate of 8% above base rate.