Late Payment Interest in Vietnam: 6 Checks Before Calculating a Claim

At first look, an unpaid invoice would mean the amount the debtor needs to pay. The company knows how much is owed, and it knows the date on which the money should have arrived, so it is assumed that working out the interest is simple. In practice, this is would go wrong. A sale between two businesses and an ordinary civil debt do not follow the same rules, and they do not use the same default rate.

Payment terms, credit notes, part payments, tax and the currency of the debt can each affect the final amount. Interest, penalties and damages are also three separate things that could mix and confuse.

For all of these reasons, it is worth checking carefully before sending a demand letter, so that the company can put forward one number it is genuinely able to support with the contract, the payment records and the correct law.

Quick Reference

Late payment interest in Vietnam may still be available even where the contract does not mention interest at all, so a contract that says nothing on the subject is not a reason to give up on the claim.

The first task is to work out which set of legal rules applies to the payment, because that single decision affects almost everything that follows.

After that, the company needs to be confident about the amount that was genuinely due, the first day on which the payment became late, and every event that reduced the balance along the way.

Where the contract does contain a rate, that rate is something to test rather than something to use straight away. Where there is no valid agreed rate, the rate comes from the law instead. It is also important to keep the unpaid amount, the interest, any penalty and any damages on separate lines, because each of them depends on different conditions.

Notices, evidence, time limits, the choice between court and arbitration, and the realistic chance of actually being paid all deserve attention as part of the wider handling of contract disputes in Vietnam.

In short, it is rarely safe to take one percentage and apply it to the last invoice total. A claim that holds up is built from the contract, the due dates, the balance as it changed over time, and the evidence supporting the rate.

Late Payment Interest in Vietnam: 6 Checks Before Calculating a Claim

Check Which Rules Apply to the Payment

The starting point is the contract itself: what kind of contract it is, who the parties are, and what the governing law clause says. A sale or service contract between two businesses will often fall under the Commercial Law, which has its own rule allowing interest on a late payment for goods, a service fee or another reasonable cost.

Where the parties did not agree a different rate, that rule points to the average market rate for overdue bank debt at the relevant time, rather than to a fixed percentage written into the law.

A payment under an ordinary civil contract follows a different set of rules. Under the Civil Code as it stands today, an agreed interest rate has a maximum of 20% a year, and where the parties agreed nothing at all, the default rate is half of that maximum, which comes to 10% a year.

These figures are set by law, and the law can be amended, so it is sensible to check them again on the day the calculation is done rather than relying on a number remembered from an earlier matter.

One of the more common mistakes is applying the 10% civil rate to every unpaid commercial invoice, simply because it is an easy figure to remember. The Commercial Law has its own default rule and it deserves to be considered first.

In another scenario, where a commercial contract contains a high agreed rate, the other side may well argue that the Civil Code maximum, or some other mandatory rule, still applies to it. Courts and tribunals have not treated these clauses in the same way in every case.

A rate above 20% a year, a fixed default charge or a clause that could reasonably be read two ways is something to put in front of a dispute lawyer in Vietnam to check before the company relies on it.

It is also worth remembering that some transactions sit outside the general framework altogether. Bank credit, construction, insurance, employment, logistics, consumer transactions, formal business recovery or bankruptcy, and certain public contracts each have special rules that may change the answer.

Where the sale is international, foreign law may govern the contract and may deal with interest quite differently. The place chosen for arbitration does not by itself decide which law controls the interest question.

Check the Amount That Was Actually Due

Interest runs on the amount that was genuinely late, and that is not always the same as the figure sitting in the accounting system.

For each invoice or milestone, it helps to gather the contract clause it relates to, the goods or service supplied, the delivery or completion record, the invoice itself, any acceptance condition, the amount paid and the remaining balance.

An invoice on its own does not prove that the goods were accepted or that a milestone was finished, so it needs to be read together with the contract and the delivery and acceptance records.

The amount may also have changed for perfectly ordinary commercial reasons: a credit note, an agreed discount, a return, a retention, a set-off, a defect claim or a price adjustment. In some situations, a buyer with supporting evidence may even have a lawful reason for holding back part of the payment.

These items should be sorted out, or at least clearly marked as disputed, before any interest is calculated on the balance.

VAT can form part of the claim where the full invoice amount is legally payable, but it should not include VAT that was properly reduced or cancelled. How the interest itself is treated for tax is a separate question again.

Withholding tax deserves its own look, particularly where the contract requires the payer to cover it. A payment made after tax has been withheld does not always clear the full contract debt, so it is important to confirm what was withheld, which party is meant to bear it, and whether the contract obliged the payer to pay the full amount in any event.

Currency needs to be checked as well. The agreed payment currency needs to be one that Vietnamese law permits, because Vietnam restricts foreign-currency pricing and payment inside the country and only certain exceptions apply.

Where the debt is in US dollars, a Vietnamese dong bank rate may not support the calculation at all. If a conversion is needed, the legal basis, the source of the rate and the conversion date should all be recorded at the time, rather than reconstructed months later.

Check the Due Date and Every Balance Period

The interest period normally begins once the payment has actually become due, and that is not always the day after the invoice was issued.

Many contracts link payment to something else entirely: delivery, receipt of documents, acceptance, a payment certificate, a signed debt confirmation, the end of an agreed credit period, or a formal demand.

Where the contract does not say when payment is due, the law may supply a payment time. Annexes and later extensions need to be read as well, because they often move the date without anyone updating the main contract.

A demand letter can be a useful record of the amount, the due date and the company’s intention to claim interest. What it cannot do is make a payment condition disappear where that condition has not in fact been met. Any required notice should follow the address, the method and the delivery rule that the parties agreed.

The amounts and dates in a breach of contract demand letter in Vietnam should line up exactly with the interest schedule and the supporting records, because any difference between the two is usually the first thing the other side will point at.

Where the balance changes, the calculation needs to be split. When the debtor pays part of the debt, one period comes to an end and a new period begins on the lower balance.

Each further payment or credit creates another period after that. It is worth recording the date on which each payment took effect and which invoice or amount it was paid against. Where the contract and the payment reference are unclear, it is not safe to assume that the money cleared principal first, or interest first, or any one particular invoice.

The calculation also needs a clear end date. A demand may run the figures through to the date it is issued. A court or arbitration claim may use a later date and ask for interest to continue running on the unpaid principal. A court or tribunal may refuse an amount that was not properly requested, so the claim and the schedule should be kept up to date within whatever rules that forum applies.

Check the Rate and the Calculation Method

The interest clause deserves to be read in full. It may set a monthly or an annual rate, a bank base rate plus a margin, a grace period, a rate that changes over time, a maximum, or a condition that notice be given first.

Where the rate is expressed monthly or daily, converting it into an annual figure needs care. A penalty percentage is not an interest rate and should not be treated as one. Where the wording could reasonably carry two meanings, the most useful thing to do is to show both results and let the lawyers in Vietnam decide between them.

For a commercial contract with no valid agreed rate, a Vietnamese court will normally look for the average overdue-debt rates of at least three commercial banks in Vietnam that have a head office, branch or transaction office in the province or city where the court sits.

There is a point of detail here that is easy to miss. The law itself points to the time of payment, while the guidance given to courts points to the time of the first hearing.

A savings rate, an ordinary lending rate, or a printout from a single bank’s website is not the same kind of evidence and is unlikely to be accepted in its place.

When approaching the banks, the request should be for the correct currency and for a rate on a comparable overdue loan. The written confirmations or saved rate sheets should be kept, because they are the evidence itself.

The Supreme Court guidance does not answer every question about the banking product, the type of customer or the loan term, so it is worth recording the reasons why the selected rates can fairly be compared with one another. An arbitral tribunal may find the court method a useful reference, but it remains free to assess the contract, the evidence and the applicable rules in another way.

For each period, the annual rate is applied to the unpaid balance for the number of days in that period. The schedule should say whether the year is being counted as 365 days, 360 days or on another agreed basis, because Vietnamese law does not give one answer that fits every contract. 

Keep Interest Separate From Penalty and Damages

These three amounts are often discussed in the same breath, but they exist for different reasons. Late-payment interest covers the time the money stayed unpaid. A contract penalty follows an event that the penalty clause itself identifies. Damages follow a loss that has actually been proved and that is directly connected to the breach.

Because the conditions behind each of them are different, they belong on separate lines of the claim, even where the company intends to ask for all three.

Interest should not be charged on a contractual penalty or on damages as though those amounts were an overdue sale price. A Vietnamese court decision has rejected exactly that approach in a sale dispute between businesses. A judgment may later carry interest under its own rules, and a settlement may create a fresh payment debt, but neither of those points means that interest before judgment can simply be added on top of penalties or unproved loss.

Interest on unpaid interest is another area to approach carefully. The detailed rules written for loan contracts should not be transplanted into an ordinary sale or service debt.

Simple interest on the overdue principal is the safer starting position, unless a valid clause, a special law or a later agreement clearly supports something else and the likely court or tribunal would accept it.

Where a settlement rolls principal and accrued interest into one new balance, it is worth checking who signed it, how it is worded, what it means for tax, and whether the law treats that new balance as a fresh debt.

The same late payment can give the company more than one remedy, which is a real advantage but also a place where claims run into difficulty. If interest and a penalty are both claimed, the debtor may argue that one of the charges is invalid, or that the company is being paid twice over for the same delay.

The clause, the applicable law and the likely forum should all be considered before management approves the total figure. Proof of loss belongs with the damages claim and is better kept outside the interest calculation.

Check Proof, Time Limit, Forum and Recovery

The evidence file matters as well. It should hold the signed contract and its amendments, the purchase orders, the delivery and acceptance records, the invoices and any tax adjustments, bank statements, credit notes, payment references, debt confirmations, the notices that were sent and the proof that they were received.

Original electronic files should be preserved in their native form, and the company should know who is able to explain them if asked. A clear sequence of events supported by reliable evidence for contract disputes in Vietnam will usually be worth a great deal more than a large spreadsheet resting on weak source records.

Time limits are best looked at early rather than in the final month. Commercial and arbitration claims often work to a two-year period running from the breach, while some Civil Code contract claims use three years from the point at which the claimant knew, or ought to have known, that its rights were affected. Special laws can produce a different answer again.

Negotiation, a payment plan, a partial payment or a written debt confirmation may affect the date, but it would be unwise to assume that any of them stops or restarts the clock in every court or tribunal. The limitation period for contract claims in Vietnam deserves its own review and its own entry in the calendar.

The interest request itself should be stated plainly, giving the unpaid principal, the start date, the basis for the rate, the calculation date and the method for any further interest. For a court case, the three-bank evidence needs to be prepared in advance, and collecting it takes time.

For arbitration, the rules on claims and on later changes to them should be followed. It is also worth looking at the debtor’s assets, at whether any formal recovery or bankruptcy case has begun, and at whether there is a guarantee or a pledged asset to fall back on.

These facts can change both the continuing interest and the realistic prospect of payment, and they are worth weighing against the cost of the various debt recovery in Vietnam options before the company commits itself.

Management Decisions Before Escalation

Before approving an interest claim, consider to check the following:

• Which law and which contract clause actually control this debt?
• How much of the unpaid amount is accepted by the other side, how much is supported by records, and how much is genuinely disputed?
• Which due dates, payments and credits change the periods in the schedule?
• Is the rate agreed, set by law, or still waiting on bank evidence?
• Have penalty and damages been kept separate, and have the tax and currency questions been settled?
• Is the filing date protected, and is the likely recovery worth what the process will cost?

There are situations in which it is better to consider and take advice from lawyers before moving further:

• The team is applying the 10% civil rate to a commercial debt without having looked at the Commercial Law;
• The invoice date is being used as the start date although payment actually depended on acceptance or on documents;
• A partial payment, set-off, credit note, retention or tax adjustment appears to be missing;
• The rate has come from a single bank, from a deposit product, or in the wrong currency;
• Interest is being charged on interest, on a penalty or on damages;
• A settlement may have changed the maturity date or waived earlier interest;
• The debtor has entered a formal recovery or bankruptcy process; or
• The filing time limit, or the choice between court and arbitration, has not yet been confirmed.

Step-by-Step: Prepare a Late-Payment-Interest Claim

The sequence below is a practical order of work for most claims of this kind.

1. Start by collecting the signed contract, its annexes, the purchase orders, any amendments and the payment clause.

2. Confirm who the parties are, which law governs, what type of contract this is, whether any special rules apply and where a dispute would be heard.

3. List each invoice or milestone, together with the records that support the right to be paid for it.

4. Identify the due date and the first late day for each amount separately.

5. Enter every payment, credit, return, set-off, retention and tax adjustment in date order.

6. Confirm that the currency is lawful and, where a conversion is needed, decide how it will be done.

7. Check the agreed rate. Where it cannot be used, identify the correct rate under the law.

8. Collect the bank-rate evidence that the likely forum and the currency will require.

9. Calculate each balance period separately and show the day-count method on the face of the schedule.

10. Keep principal, interest, penalty and damages on separate lines, and remove anything counted twice.

11. Check the notices, the filing time, any recovery or bankruptcy process, any guarantees and the rules on changing a claim.

12. Agree the calculation date, the request for further interest, the settlement range and the next step with management.

Frequently Asked Questions About Late Payment Interest in Vietnam

Q1: Can interest be claimed when the contract says nothing about it?

Often yes. Commercial debts and civil debts each have a basis in law that does not depend on the parties having written an interest clause. What they do not share is the same default rate, so the first step is still to decide which set of rules applies to the payment.

Q2: Is the default rate always 10% a year?

No, and this is a common source of confusion. The 10% figure comes from the Civil Code and applies to a late payment where the parties agreed no rate at all. A commercial debt normally uses the average market overdue-debt method instead. It is best to decide which rules apply first, and then to check that the current figure has not changed.

Q3: Is a commercial rate above 20% a year allowed?

The Commercial Law allows the parties to agree a rate and does not state a maximum of its own. Whether the 20% figure in the Civil Code also limits a commercial contract has been approached differently in different cases. A high rate is therefore worth a legal review before the company claims it.

Q4: When does interest start?

Usually on the day after the payment became due, although the due date is not always the invoice date. It may depend on delivery, acceptance, the receipt of documents, an agreed credit period or a valid extension, so the contract needs to be read before the start date is fixed.

Q5: Which three bank rates should be used in court?

The rates should be overdue-debt rates from at least three commercial banks operating in the place where the court sits, taken at the relevant time. They should match the currency of the debt, and it helps to be able to explain why those particular rates can fairly be compared with each other.

Q6: Can interest be charged on a penalty or damages?

Those amounts are best kept out of the ordinary interest calculation before judgment. A Vietnamese decision rejected interest on them in a commercial sale case. Interest after judgment, or under a new settlement, is a separate question and needs its own review.

Q7: Does interest stop when a claim is filed?

No. Filing does not stop it by itself, and interest may keep running for as long as supported principal remains unpaid. What the company does need to do is update the amount and ask for further interest in whatever form the court or tribunal allows.

Conclusion

Late payment interest in Vietnam is best calculated from the payment records themselves, rather than by adding a single percentage to the last invoice total.

The work involved is mostly a matter of confirming the right set of rules, the amount that was genuinely due, the date on which it became late, the way the balance changed over time, and a rate that the contract or the bank records can support. Penalties and damages are different matters.

When the claim is built this way, finance, management and the dispute team can all trace the same schedule back to the same records before the matter goes any further, which is usually what makes the difference between a claim that settles and one that stalls.

About the Author

Written by Thuong Nguyen, a lawyer at ANT Lawyers and contributors to the Vietnam chapter of GAR Know-How: Commercial Arbitration. Their work focuses on arbitration, enforcement, and cross-border dispute strategy for foreign companies doing business in Vietnam.

About ANT Lawyers, a Law Firm in Vietnam

Founded in 2012, ANT Lawyers is a Vietnam law firm with offices in Hanoi, Ho Chi Minh City and Da Nang. Our dispute resolution lawyers advise on commercial litigation, arbitration and enforcement of awards in Vietnam. We combine legal analysis with practical understanding of Vietnam’s regulatory environment and local administrative practice.

General Disclaimer

This article is for general informational purposes only, does not constitute legal advice, and does not create a lawyer-client relationship. Vietnamese laws, regulations and administrative practice change over time, and the correct position for any matter depends on its specific facts and the rules in force when action is taken. Verify the current position before relying on anything stated here, and consult qualified counsel on your specific situation.

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