This clause sets what interest rate you'll charge if the other party pays you late. For example, if they owe you £5,000 and pay 30 days late at 8% annual interest, you'd earn about £33 extra. In the UK, the Late Payment of Commercial Debts (Interest) Act 1998 automatically gives you the right to charge interest even without this clause—currently 8% plus the Bank of England base rate. This clause is "low risk" because it protects you, not them. The legal principle is that late payment shouldn't go unpunished, and interest compensates you for the time value of money.
If the clause sets interest lower than the UK statutory rate (8% + base rate), push back and ask for the statutory rate instead. Make sure the clause clearly states when interest starts running (usually from the due date, not the invoice date) so there's no confusion later. ---
Frequently Asked Questions
What does this clause mean in simple terms?
This clause sets what interest rate you'll charge if the other party pays you late.
Why should I care about this clause?
For example, if they owe you £5,000 and pay 30 days late at 8% annual interest, you'd earn about £33 extra.
What are my options?
In the UK, the Late Payment of Commercial Debts (Interest) Act 1998 automatically gives you the right to charge interest even without this clause—currently 8% plus the Bank of England base rate.
How does this affect small businesses?
This clause is "low risk" because it protects you, not them.