Credits, Receipts, and Interim Payments: How to Calculate Interest on Disputed Bills and Cost Schedules
The Problem
When a debt or costs bill is subject to part-payments, interim orders, or staged receipts, interest does not accrue uniformly on the original amount owed. Each credit reduces the principal, and future interest accrues only on the net balance. This is obvious in theory. In practice, most schedules we see get it wrong.
The Legal Principle
Interest compensates a creditor for being deprived of money over time. Once part of that money is paid, the creditor is no longer deprived of it, and interest on that portion stops. But correctly applying this to a multi-year dispute with several interim payments requires segmenting the interest calculation by payment date and recalculating the base after each credit.
Scenario 1: Costs Disputes
A claimant is awarded £100,000 in costs, with judgment on 1 January 2024. The paying party makes an interim payment of £30,000 on 30 March 2024, another £20,000 on 30 September 2024, and pays the balance on 1 January 2026. How much statutory interest (assume 8% per annum, simple interest) is due?
Incorrect Method
Calculate interest on £100,000 for the entire period (two years), then subtract something. This is wrong because it ignores that £30,000 stopped accruing interest on 30 March 2024 and £20,000 stopped accruing on 30 September 2024.
Correct Method
1 Jan 2024 to 30 March 2024 (89 days): Interest on £100,000
- £100,000 × 8% × (89 ÷ 365) = £1,945.21
30 March 2024 to 30 Sept 2024 (184 days): Interest on £70,000 (after £30k credit)
- £70,000 × 8% × (184 ÷ 365) = £2,821.92
30 Sept 2024 to 1 Jan 2026 (458 days): Interest on £50,000 (after further £20k credit)
- £50,000 × 8% × (458 ÷ 365) = £5,021.92
Total interest: £9,789.05
If you had instead applied 8% to £100,000 for two years, you would have claimed £16,000 in interest—nearly double the correct amount. No costs judge would allow that, and if you submitted such a schedule, you would lose credibility.
Scenario 2: Commercial Debt with Part-Payment
A supplier invoices £50,000, due 1 February 2023. The buyer pays £20,000 on 1 August 2023, then disputes the balance until settlement on 1 February 2026. Late Payment Act statutory interest applies (BoE base rate + 8%, with semi-annual rate changes).
You calculate:
- Interest on £50,000 from 1 Feb 2023 to 1 Aug 2023 (181 days) at the applicable rate (say, 11.50%).
- Interest on £30,000 (after the £20k credit) from 1 Aug 2023 to 1 Feb 2026, applying each semi-annual rate change in turn.
The key: Adjust the principal downward at each payment date. Each time the debtor pays, the base on which future interest accrues shrinks.
Scenario 3: Employment Tribunal — Regular Monthly Underpayments
An employee should have been paid £2,000/month but was paid only £1,600/month for 24 months (Jan 2023 to Dec 2024). Statutory interest applies from the date each payment was due, at 8% simple interest.
Each month's £400 shortfall starts accruing interest from that month-end. By the time judgment is entered in, say, June 2025, the first shortfall (Jan 2023) has been accruing for 29 months; the last (Dec 2024) for only 6 months. Calculate interest separately for each period and sum them. (See the article on Wage Arrears for a detailed worked example.)
Why Practitioners Get This Wrong
Most standard spreadsheet templates assume a single principal amount, a single start date, and a single interest rate. When there are credits or multiple accrual dates, those templates break. The practitioner either:
- Applies interest to the gross amount for the entire period (overstating interest on the credited portion).
- Subtracts the credit from principal at the outset, rather than from the relevant date (understating interest on the pre-credit period).
- Tries to do it manually and makes arithmetic errors in the segmentation.
The first error is most common. It inflates the claimant's case and invites a strong defense from the other side.
For Costs Lawyers and Employment Practitioners
If your matter involves staged payments, interim awards, or rolling deductions, do not rely on a one-line interest formula. Break the timeline into segments. Apply interest to the correct principal for each segment. Show your working in a table:
| Period | Principal | Rate | Days | Interest |
|---|---|---|---|---|
| 1 Jan – 30 Mar | £100,000 | 8% | 89 | £1,945.21 |
| 30 Mar – 30 Sept | £70,000 | 8% | 184 | £2,821.92 |
| 30 Sept – 1 Jan | £50,000 | 8% | 458 | £5,021.92 |
| Total | £9,789.05 |
Judges and opposing parties will scrutinise this, especially in high-value matters. Getting it right is not difficult, but it does require care—and ideally, a tool that handles the segmentation automatically.
Calculate Interest with Interim Payments
Our calculator handles credits and receipts automatically, adjusting principal at each payment date.