One of our clients has a dispute with a factoring company. A factor buys debts at a discount from companies that have cash flow issues, but they are very expensive forms of finance.

In this case, if the debtor fails to pay within the time stated on the invoice, not only is interest charged on the total debt at 15.75% accruing daily and compounding monthly, but 0.1% of of the total debt also accrues per day (i.e. additional interest at 36.5% per annum), and 20% of the money is withheld anyway, so that effectively increased the percentages by 25%.

By our calculations, the effective equivalent interest rate is about 70% per annum!!!  We will be arguing that this amounts to a penalty and is unenforceable.

For assistance with fights over money, see Michael Paterson & Associates