Statutory Commercial Interest

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A statutory commercial interest is a legal rate that applies to overdue payments or compensation. This rate is determined annually by the government. The statutory commercial interest is meant to give companies a legally determined remuneration for the use of their capital in business-to-business transactions and between businesses and government institutions. This ensures that payment obligations between trading parties are distributed more fairly. It also helps to prevent cash flow problems and bankruptcies.More info

The statutory interest is charged at the official dealing rate plus 8%, which is the base rate set by the Monetary Policy Committee of the Bank of England. The legal interest can be compound or simple. If the statutory interest is compounded, it is added to the total outstanding amount each period. If the statutory interest is simple, it is calculated on the original amount due each period.

Interest Rates Unveiled: Understanding the Nuances of Statutory Commercial Interest

In general, you can charge statutory interest in the case of late payment by other businesses, but only if the agreed payment terms on your invoices, purchase orders or contracts do not include contractual interest (e.g. a rate of interest of 4% above the Bank of England base rate for business to business transactions). You can also charge a fixed sum for the costs of recovering a late commercial payment on top of your statutory interest.

In the case of oil and gas royalties, a contract is not considered to be a ‘commercial transaction’ in the sense of the law if it only includes production payments from the operator to the royalty owner. This is because the contracts are usually not linked to specific production volumes or a set number of sales, but instead to an estimate of how much is likely to be produced and sold each month.


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