Introduction
Late payment is one of the most common problems in cross-border trade. When a buyer doesn't pay on time, sellers often wonder: can I claim both interest on the overdue amount AND liquidated damages under the contract? Or is it one or the other?
The answer is: it depends on the contract and the applicable law. But in most cases, you can claim both — as long as the total amount doesn't exceed your actual losses.
Understanding the Difference
It's important to distinguish between these two types of compensation, because they work differently under Chinese law.
Interest on overdue payments
Interest is a statutory right. You don't need a specific contract clause to claim it — as long as the buyer is late with payment, you're entitled to interest on the overdue amount.
Under Chinese law, the interest rate for overdue payments is typically based on the Loan Prime Rate (LPR) published by the National Interbank Funding Center, which is authorized by the People's Bank of China. The LPR is updated monthly, and courts use it as the benchmark for calculating late payment interest.
Liquidated damages
Liquidated damages, on the other hand, are a contractual remedy. They only exist if your contract explicitly includes a liquidated damages clause, specifying the amount or the method of calculation.
Under Chinese contract law, liquidated damages are primarily compensatory — they're meant to compensate the non-breaching party for losses caused by the breach. They can have a deterrent effect, but their main purpose is to make the injured party whole, not to punish the breaching party.
Can You Claim Both?
In most cases, yes. Interest and liquidated damages serve different purposes:
- Interest compensates you for the time value of money — the fact that you didn't have use of the funds you were owed.
- Liquidated damages compensate you for other losses caused by the late payment, such as additional financing costs, storage fees, or lost business opportunities.
However, there's an important limit. If the total amount of interest plus liquidated damages is significantly higher than your actual losses, the court may reduce it upon the buyer's request. Chinese courts have the discretion to adjust liquidated damages that are excessively high relative to the actual harm.
When Can't You Claim Both?
There are a few situations where you might not be able to claim both:
1. The contract explicitly says so: If your contract states that liquidated damages cover all losses, and no additional interest will be charged, the contract language will generally prevail.
2. The total amount is too high: As mentioned above, if interest plus liquidated damages far exceed your actual losses, the court will likely reduce the total.
3. You didn't mitigate your losses: If you could have taken reasonable steps to reduce your losses but didn't, the court may reduce your compensation accordingly.
Practical Tips for Sellers
- Include a clear liquidated damages clause in your sales contract: Don't rely on statutory remedies alone. A well-drafted liquidated damages clause can make it much easier to recover compensation later.
- Keep detailed records of all losses: The more evidence you have of the actual harm caused by late payment, the stronger your claim will be.
- Act promptly: Don't wait too long to demand payment or start legal proceedings. The longer you wait, the harder it can be to recover.
- Consider alternative dispute resolution: Cross-border litigation can be slow and expensive. Arbitration or mediation may be faster and more cost-effective for smaller claims.
Disclaimer
This article provides general information on late payment claims under Chinese law as of September 2026. The specific outcome of any claim depends on the contract terms, applicable law, and individual circumstances. This is not legal advice.
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Shaobo Wu | License No. 14406201510064375 | Guangdong Xing Chuo (X&C) Law Firm