Debt interest

Debt interest is the interest charged on an outstanding amount when a debtor fails to pay on time. The interest is a compensation to the creditor for the period of time the money has been tied up in the debt.

Debt interest is typically regulated by the Interest Act, which sets the rules for when the creditor can claim interest for late payment. In some cases, a higher interest rate may also be agreed in the contract between the parties, especially in business relationships.

How is the debt interest calculated?

Interest is calculated as a percentage of the amount owed. According to the Interest Act, the creditor can claim default interest equal to National Bank of Denmark's lending rate + 8 percentage points annually when an invoice is not paid on time.

Example: If a debtor owes 10,000 DKK and the default interest rate is 9.9% per year, the debt interest will be approximately 825 DKK annually (10,000 x 0.099).

When can you claim interest on debt?

• When an invoice or claim is not paid within the payment deadline.
• If special terms have been agreed in the contract (e.g. higher interest rates between traders).
• When no special terms have been agreed, the rules in the Interest Act apply.

For consumers, the rules are precise and protective, while for businesses there is more freedom to set their own interest rates.

Debt interest and debtor management

Debt interest acts as an incentive for the debtor to pay faster and as compensation to the creditor for the lost return. However, interest on debt is rarely enough in itself to make a bad payer pay - reminder procedures, debt collection notices and debt collection may be necessary.

The role of Collectia

At Collectia, we help both small and large businesses enforce their claims correctly - including the calculation and imposition of interest on debt in accordance with legislation. Our systems ensure that you don't lose interest, forget fees or miss important deadlines.