If any sum payable under this Agreement is not paid on or before the due date for payment, the party in default shall pay interest on that sum at [ ]% per annum above the base rate of [ ] Bank plc from time to time in force, accruing on a daily basis from the due date until the date of payment, whether before or after judgment.
Here is a plain English explanation of the Payment - Interest on Overdue Remittance clause:
- If either party does not pay any amount owed under the contract by the deadline, they will owe interest on the late payment.
- The interest rate will be [X]% per year above the base rate of [Bank Name] Bank.
- The base rate is the rate set by [Bank Name]. Interest accrues each day starting from the missed payment deadline until the overdue amount is paid in full.
- This applies both before and after any court judgment on the late payment.
- The interest is designed to compensate the party who is owed money for the late payment and motivate timely payment.
- By specifying the interest rate formula, it provides a clear way to calculate interest without needing negotiation.
- Interest accumulation starts automatically from the payment deadline without special notice.
- Overall, this clause incentivizes prompt payment according to the contract schedule and provides a fair interest rate if payment is delayed.
The concept of imposing interest on late payments has existed since ancient times. Early legal codes in civilizations like Mesopotamia and Ancient Rome codified interest for overdue debts.
The purpose was to compensate creditors for loss of use of money or goods owed. Interest rates were often set at usurious levels.
In the Middle Ages, religious teachings against usury led to bans on interest in some areas. But interest remained an accepted practice for merchants and moneylenders. Trade expansion in the Renaissance increased the use of credit and loans. Standardized interest rates emerged to facilitate commerce.
The 1700s saw interest become ingrained in modern business culture and contract law. The growth of banking established benchmark rates that contracts could reference for interest clauses. Courts widely enforced interest as a remedy for late payment.
Over time, interest clauses evolved in specificity to suit complex transactions and avoid ambiguity. Rate formulas based on published benchmarks created objective criteria for interest accrual. Daily compounding became common to optimize compensation for late payment.
Today, interest on overdue payments is a contractual norm across geographies and industries.
The long historical development of such clauses underscores their usefulness in providing fair compensation, incentivizing performance, and supporting contractual obligations.