Late Payment and Recovering the Cost of Credit

A supplier delivers, the customer pays late, and the supplier bridges the gap with credit. Interest on that credit keeps running while the default interest recoverable from the debtor falls short of it. The difference is not a loss the law expects the creditor to absorb.

Loss exceeding default interest

Where the creditor's loss exceeds the default interest that has accrued, the debtor must compensate the excess as well, unless it proves absence of fault.

This is among the least used creditor rights in practice. The obstacle is not legal but evidential.

What has to be proved

Three elements together:

1. The loss and its amount. The loan agreement, drawdown dates, interest rates and schedules of interest actually paid.
2. The causal link. That the borrowing was caused by the unpaid receivable. Alignment between the amounts, and between the drawdown date and the date of default, is what carries this.
3. That the loss exceeds default interest. A comparative calculation of interest paid against default interest recoverable.

A business with orderly records can prove this. One without them generally cannot.

Building the file

What works in practice is documenting the loss when it arises, not when proceedings are issued:

• A dated demand for every receivable that falls overdue,
• An internal note or management decision linking each drawdown to the receivable it covers,
• Accounting records in which receivable and credit movements can be traced,
• Regular reconciliation of current accounts.

Those four steps give the expert examination at trial something to work from.

Limitation

Receivables do not disappear on their own, but once time-barred they can no longer be enforced through the courts. The general period is ten years unless a shorter one applies.

Time runs on financing-cost claims too. That a business is still paying interest today on credit drawn because of an old unpaid invoice does not make the claim open-ended.

Outstanding receivables and the financing losses attached to them are therefore worth reviewing on a fixed cycle, ideally annually. The question to answer is simple: which claims are still capable of being brought, and which are approaching the limit.

Conclusion

The financing cost of late payment does not have to be accepted as an ordinary expense of trading. Passing it back to the debtor runs not through the statement of claim but through records kept from the moment the receivable arose.