Danish law provides that in the absence of any other agreement, interest is charged once payment becomes due (if such a date is found in the contract); in other cases, interest is charged if a letter is sent requesting payment of the principal and indicating that interest will be charged a month from the date of the letter. The interest rate allowed for is 6% above the Danish Central Bank's 'discount rate' (making a total of approximately 13% per annum at present).
Many Danish firms charge a higher rate of 2% or 1.5% per month, payable 30 days from the end of the month found on the invoice. But legal cases have established that it is not sufficient for this higher interest requirement to appear on invoices. It must be in the conditions of sale.
There have been very few problems since this system became general from 1986. In the early days a few companies would try to avoid paying the interest, and sometimes good customers would be let off 'this once', but now firms pay up quite readily. The rate charged varies from about 1.2% per month to 2.5%. Currently 1.5% per month seems to be the average. The introduction of this new business climate was facilitated originally by the government bringing together all the various business associations, who agreed that getting cheap credit from small firms through late payment was unfair, and that this new system should be introduced.
A recent CBI survey showed that nearly one in five small firms in the UK was under threat because of late payment of bills, and a large majority of small and medium-sized businesses backed a statutory right to interest on outstanding debts.
The Institute for Social Inventions sympathises with the government's desire to avoid legislation and its desire to simplify the conditions under which businesses operate. Statutory interest would, surprisingly, help achieve this. At present there is a right to interest, but one has to get a county court judgement in one's favour to acquire it (in the county court interest of 15% from the due date is awarded on debts). How much simpler it would be and how much less recourse to legal processes would be involved, if statutory interest were in place and were part of the business climate.
There is such a statutory right to interest not only in Denmark but in West Germany, the Netherlands, France, the United States and Norway. In one or two of these countries the legislation is not widely known about, but where it has been introduced or publicised fairly recently, it appears to be effective - in Norway, for instance, there is little incidence of late payment of debts.
The above information came partly from the Danish Industry Ministry (tel 45 1 923350); a Danish lawyer in London, Christian Emeluth (tel 071 497 9389); Ole Christensen at the British Embassy in Copenhagen (tel 45 126 4600); Andy Scott at the CBI (tel 071 379 7400) and Colin Gray, Deputy Director-General at the Small Business Research Trust (tel 071 828 5327).