Interest clauses
A practice note that covers how to draft and review a clause providing for the payment of interest on late payments in commercial transactions. The note explores the strategic reasons for both suppliers and customers to include an express interest clause, addressing how such a term can displace statutory rights or provide greater certainty. The guidance addresses the key drafting considerations to ensure an interest clause is enforceable, including how to structure the rate, period and calculation method for simple or compound interest. The note also examines the key common law and statutory controls on interest clauses, such as the rule against penalties, which can render a default interest rate unenforceable, the applicability of the Late Payment of Commercial Debts (Interest) Act 1998 and the rules on unfair terms in consumer contracts.
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