Interest and Costs in Recovery
Can a client add interest and recovery costs to a debt? The answer depends on the terms — here is a careful overview for advisers.
In this guide
- Understand when interest can be claimed on a debt
- Distinguish contractual interest from court-awarded interest
- Recognise how recovery costs may be recoverable
- See why terms of trade are central to both
- Know when to direct clients to legal advice
6 min read
Two sources of interest
Interest on a debt generally comes from one of two places. The first is contractual: if a client's terms of trade provide for interest on overdue amounts, that interest may be claimable as part of the debt. The second is court-related: a court may award interest in connection with a judgment. The two operate differently, and it is important to be clear about which one applies before stating a figure to a debtor.
Why the terms decide
The right to charge interest on an overdue commercial account usually rests on the terms of trade the parties agreed. Without a contractual right, simply adding interest to an invoice can be open to challenge and may weaken a demand. This is why well-drafted terms — clearly setting out any interest rate on overdue amounts — are so valuable, and why advisers often encourage clients to get their terms right before problems arise.
Recovery costs
Whether a creditor can pass on the costs of recovery — fees and expenses incurred in chasing the debt — again tends to turn on the terms of trade. Some commercial terms expressly provide for recovery costs to be recoverable from the debtor; without such a provision, the position is less straightforward. As with interest, the contract is the starting point, and the wording matters.
Practical points
For advisers, two messages stand out. First, accuracy matters: overstating a debt by adding interest or costs the contract does not support can backfire and invite dispute. Second, prevention beats cure: encourage clients to set clear terms of trade up front. Clients can prepare a demand using Merion's online tools and refer the matter where appropriate.
This is general information only and not legal advice. What can be claimed depends on the contract and the law, and clients should seek tailored advice on a specific debt.
Key takeaways
- Interest may be contractual or court-awarded — they differ.
- A right to charge interest usually rests on the terms of trade.
- Recoverability of recovery costs also tends to turn on the terms.
- Overstating a debt with unsupported interest or costs can backfire.
- Clear terms set up front prevent later argument.
Frequently asked questions
Can my client add interest to an overdue invoice?
Usually only where the terms of trade provide for it, or where a court awards it. Adding interest without a contractual basis can be challenged. This is general information, not legal advice.
Can recovery costs be passed to the debtor?
Sometimes, where the terms of trade expressly provide for it. Without such a provision the position is less straightforward.
What is the safest approach?
Claim only what the contract clearly supports, keep figures accurate, and seek advice on anything uncertain.
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