Default interest in commercial transactions
In the supply of goods and services between commercial undertakings, the debtor falls into default on the agreed payment date without any need for notice, or on expiry of the statutory periods where no date was agreed. Where the contract sets no rate, the law applies a rate tied to the Central Bank’s advance interest rate for commercial transactions, increased by a statutory margin.
The point that matters is that the statutory rate frequently sits below the creditor’s actual cost of funds. A contractual rate that reflects that real cost leaves the burden of late payment with the debtor. Without one, the difference quietly migrates to the creditor.
- State the default interest rate and when it starts to run
- Tie the due date to delivery or acceptance rather than the invoice date
- Say whether part payments are applied to interest or to principal first
- Compounding may only be agreed within the limits the law allows
Loss exceeding default interest
Where the creditor’s loss exceeds the default interest that has accrued, the debtor must also compensate the excess unless it proves absence of fault. The typical case: a business that cannot collect from its customer draws on credit, and the interest it pays materially exceeds the default interest it can recover.
Claiming that difference requires the loss to be evidenced concretely — the loan agreement, the drawdown dates, the interest schedules, and the causal link between the unpaid receivable and the borrowing. A business with orderly records can prove this; one without them generally cannot.
Limitation: receivables that quietly expire
Receivables do not disappear on their own, but once time-barred they can no longer be enforced through the courts. The general limitation period is ten years, with shorter periods for periodic obligations such as rent, interest and wages, and for certain commercial claims.
Time also runs on claims for financing costs. That a business is still paying interest today on a loan drawn because of an old unpaid invoice does not make the claim open-ended. Outstanding receivables and the financing losses attached to them are worth reviewing on a fixed cycle.
Getting the contract right at the outset
Most commercial disputes arise from matters that a few sentences at drafting stage would have settled. Delivery and acceptance, notice periods for defects, payment terms, interest, liquidated damages, security, termination events and jurisdiction: leaving them unwritten means falling back on the general provisions of the law when a dispute arises.
Reviewing the counterparty’s standard form before signing it is always cheaper than arguing about the same document afterwards.
Frequently asked questions
What happens if the contract does not state an interest rate?
The statutory rate applies. In commercial matters it is tied to the Central Bank’s advance interest rate, and it is often below the creditor’s real cost of funds.
Can I recover the interest on credit I drew because a customer did not pay?
Loss exceeding default interest can be claimed, but the link between the borrowing and the unpaid receivable, and the interest actually paid, must be evidenced. The loan agreement, the repayment schedule and the accounting records form the basis of that proof.
What is the limitation period for commercial receivables?
Ten years unless a shorter period applies; some categories are subject to five years. When time starts to run depends on when the receivable fell due.
Can interest be charged on interest?
As a rule, no. In commercial matters it may be agreed on a limited basis in current account and loan relationships where both parties are merchants and the statutory conditions are met.