Late Payment of Commercial Debts

In tough times cash is king, which means efficient credit control. The Late Payment of Commercial Debts (Interest) Act 1998 has always been a useful tool. It gives a statutory right to interest of 8% over the current base rate, plus a right to charge a fixed sum for your costs of recovery (currently £40 for a debt of less than £1,000). These are good rates. You don’t have to go to court to get them. You don’t even have to have this written into your Terms & Conditions – if you have a lower rate of interest in these you may not be able charge the Late Payment Rate. Businesses are entitled to claim interest and charges when a debt remains unpaid after the date specified on the contract, or in the absence of a contract, 30 days after the delivery of the goods or service.

From 16th March 2013 the Late Payment legislation has been reinforced. For contracts entered into on or after that date with non-public authority purchasers, there will be a maximum payment period before Late Payment Interest of up to 60 days. Where the purchaser is a public authority purchaser, the maximum payment period is 30 days. These periods run from the later of the receipt of the supplier’s invoice, or the receipt of the goods and/or services. It is possible for the parties to agree a longer period or a trigger based on the purchasers confirmation the goods and/or services are in accordance with the contract, but these variations must not be ‘grossly unfair’ to the supplier. The aim of these changes is to put pressure on payers. The intention is that most will abide by these deadlines and not take the risk that seeking longer terms may be found to be unfair.

Also, where the supplier’s actual costs in recovering the debt exceed the fixed charge sums the supplier will have a right to recover the reasonable costs of recovering any debt.

You can find the new regulations and helpful guidance on operating them, including online interest calculators, and templates at Pay on Time

Finally, for those who wonder about the impact of the European Parliament and Council, the recent changes implement EU Directive 2011/EU.

This note is for information only, the Late Payment regulations have exceptions and you should look at the guidance or take advice before using them.

For further help contact Neil Howlett in Frome or Andy Hambleton in Wells