LATE PAYMENT INTEREST IN COMMERCIAL CONTRACTS

In commercial activities, time is money, and reputation is the foundation of all cooperative relationships. Each contract is not merely an agreement for the sale of goods or the provision of services, but also a clear commitment regarding payment obligations and mutual trust between the parties. In reality, late payments in commercial contracts are becoming increasingly common, disrupting cash flows, escalating risks, and directly infringing upon the rights of sellers and service providers. Therefore, provisions on late payment interest in commercial contracts have become a vital tool to protect the legitimate interests of the parties, while simultaneously ensuring deterrence and fairness in business relations.

1. Regulations on late payment interest in commercial contracts

Neither the Commercial Law nor the Civil Code explicitly defines the concept of a commercial contract. However, a commercial contract can be understood as an agreement between parties to carry out activities involving the purchase and sale of goods, provision of services, investment, commercial promotion, or other profit-seeking activities. Examples include: goods sale and purchase contracts, service provision and usage contracts, property lease contracts, construction contracts...

The subjects of commercial activities are usually business merchants or, in some cases, it only requires the selling or service-providing party to be a merchant, while the other party is an organization or individual involved in commercial activities.

Example: Company A is a manufacturer specializing in winter clothes and Christmas festival apparel, and Company B is a distributor. Company B wants to buy 1,000 Santa fur coats from Company A to distribute in the market. The two parties signed a goods distribution contract on November 11, 2025, to establish their transaction.

Late payment interest is an amount of money intended to compensate the aggrieved party for the damages caused by not receiving money on time, which the breaching party is obligated to pay. In practice, there are cases where the seller receives money but fails to deliver the goods (assets) as agreed in the contract, such as not delivering, not delivering in full, or delivering goods of substandard quality, requiring a refund because the buyer did not receive the goods as agreed. Even in cases where the buyer has paid or advanced money but the payee fails to perform the agreement properly, late payment interest still arises based on Article 306 of the 2005 Commercial Law and Precedent No. 09/2016/AL.

* Conditions for calculating interest:

When either party breaches the payment deadline committed in the contract, such as late payment for goods, late payment of legal service remuneration, or other reasonable expenses, the aggrieved party (the party whose rights are violated) has the right to claim interest as agreed upon or claim interest on the delayed amount based on the average overdue debt interest rate in the market at the time of payment, corresponding to the period of delay (Article 306 of the 2005 Commercial Law).

2. The time to start calculating late payment interest:

Regarding the incurred interest, the plaintiff typically requests the interest to be calculated starting from the day following the due date on which both parties committed to fully settling the payable amount. If the contract does not specify that the breaching party must bear accrued interest for delayed payment obligations, and the contract clauses do not stipulate interest for late payments, yet the obligated party fails to pay the debt, then based on Article 357 of the 2015 Civil Code, the defendant is forced to bear the interest arising from the date of delayed payment until the date of the first-instance trial if the case is resolved by an Arbitration Council or accepted by a Court, unless the parties agree otherwise but not exceeding the legally permitted limit. If there is a more positive or favorable direction for the obligated party, there is still a basis to accept that request (Point c, Clause 3, Article 6 of Resolution 01/2019/NQ-HDTP dated January 11, 2019).

Illustrative example: In the First-instance Civil Judgment No. 13/2025/KDTM-ST dated August 25, 2025, regarding a "dispute over a contract for the sale and purchase of goods" by Court A, the content was as follows: Company D1 sued Company T1 for a debt amount of 62,110,123 VND arising from Principle Contract No. X dated July 28, 2024, but at the time of the trial, the payment obligation had not been fulfilled. On January 7, 2025, Company T1 and Company D1 signed a Debt Confirmation and Debt Repayment Commitment Minute. Company D1 admitted that the latest time Company V granted to Company D1 was April 16, 2025. Therefore, Company D1's request for Company T1 to pay late payment interest starting from May 1, 2025, was favorable to the defendant, so it was accepted by the Trial Panel.

3. Principles for determining late payment interest rates:

Case 1: The signed contract contains an agreement on the interest rate for late payment obligations

Currently, Article 306 of the 2005 Commercial Law allows the parties to agree on the interest rate for late payment of money, service remuneration, and other reasonable expenses... but does not prescribe a ceiling interest rate. Based on Clause 2, Article 357, and Clause 2, Article 468 of the 2015 Civil Code, if the parties have clearly agreed on the late payment interest rate, the interest will be applied according to this agreement. However, this interest rate must not exceed 20%/year.

Case 2: The parties do not agree on accrued interest if one or both parties breach their payment obligations

The interest rate is determined based on the average overdue debt interest rate in the market at the time of payment according to Article 306 of the 2005 Commercial Law and guided in Article 11 of Resolution 01/2019/NQ-HDTP, which took effect on March 15, 2019.

In practice, when resolving disputes, the Court bases its calculation on the average overdue debt interest rate of at least three major commercial banks at the time of payment (Joint Stock Commercial Bank for Foreign Trade of Vietnam - Vietcombank, Vietnam Bank for Agriculture and Rural Development - Agribank, Vietnam Joint Stock Commercial Bank for Industry and Trade - VietinBank, Joint Stock Commercial Bank for Investment and Development of Vietnam - BIDV, etc.) that have headquarters, branches, or transaction offices in the centrally-run province or city where the Court is handling the case, at the "time of the first-instance trial" to calculate the late payment interest if the contract has no specific agreement (guided by Precedent No. 09/2016/AL).

Thus, late payment interest in a commercial contract can be determined based on the agreement between the parties; if there is no agreement, the average overdue debt interest rate of commercial banks at the time of payment shall be applied.

* General formula for calculating late payment interest:

Late payment interest = Overdue debt amount x Delay period x Late payment interest rate

Where:

+ The overdue debt amount is the portion of the monetary obligation that the breaching party has not paid;

+ Late payment interest rate: can be according to an agreement ≤ 20%/year, or if not specified, according to the average overdue debt interest rate in the market of at least 3 local banks as follows:

Average overdue interest rate = (%Vietcombank + %Agribank + %Vietinbank) x 150% / 3

+ Delay period: calculated from the day following the payment due date until the day the breaching party fully pays in reality.

Illustrative example: Company A sells dog and cat food to Company B under a commercial contract worth 1,000,000,000 VND, with the final payment deadline being September 1, 2025, upon full receipt of goods. However, it was not until November 1, 2025, that Company B paid the full amount for the goods (i.e., 60 days late, starting from September 2, 2025).

The two parties did not have a separate agreement on late payment interest. At the time of payment, the average overdue debt interest rate of 03 banks (Vietcombank, Vietinbank, Agribank) is: 9%/year, equivalent to 0.75%/month.

Accrued interest to be paid:

= 1,000,000,000 x 60 days x 0.75%/month = 14,794,520 VND

Thus, Company B must pay Company A an amount of 14,794,520 VND in late payment interest in addition to the principal amount of 1 billion VND.

4. Recommendations:

In trial practice, the Court only accepts calculating interest on the portion of money that is due but unpaid. If the breaching party has partially paid, only the remaining debt will be subject to late payment interest. Additionally, the interest calculation must not exceed 20%/year if the parties' agreement is inconsistent with current legal regulations.

To minimize disputes and ensure that the late payment interest rate clause is conveniently accepted by the Court/Arbitration Center regarding the interest rate request, merchants need to have a clear agreement and specifically record it in the signed commercial contract, proposing additional contents on:

(i) The interest rate applicable in case of late payment (e.g., equal to or higher than the interest rates of local commercial banks but not exceeding 20%/year);

(ii) The starting time for calculating late payment interest.

Thus, the provisions of Vietnamese law on late payment interest in commercial contracts are not only a measure to compensate for the losses of the aggrieved party but also contribute to building a fair, responsible, and sustainable business environment. Enterprises need to firmly grasp the legal regulations and actively make specific agreements in their contracts to protect their rights and interests effectively and legally.

Contact Information:

DL PINNACLE LAW FIRM LLC

Address: 3rd Floor, 18A/76 Nguyen Thi Minh Khai, Sai Gon Ward, Ho Chi Minh City

Hotline: 0914.491.911

Email: info@dlpinnacle.vn

Website: https://www.dlpinnacle.vn