The Late Payment of Commercial Debts (Interest) Act 1998 has two purposes, these being:
- To compensate creditors for the late payment of debts,
- To deter late payment.
The Act and the Statutory Instrument, Late Payment of Commercial Debts Regulations 2002 (LPCDR) only applies to the commercial supply of goods and services and specifically where a provision for interest is not contained in your standard Terms and Conditions of Business.
In brief, for invoices that are not paid on time, it enables you to claim interest, compensation and (for orders placed after 16 March 2013) your reasonable costs of collecting the debt where these exceed the compensation. Interest can be claimed at 8% over base together with compensation at the rate of between £40 and £100 per invoice based on the following invoice value thresholds:
|Up to £999.99||£40 per invoice|
|£1000 – £9,999.99||£70 per invoice|
|Over £10,000.00||£100 per invoice|
The provision where you can claim your reasonable costs only applies where your Terms and Conditions of business are silent on interest. However as an Act of Parliament, the right to claim interest and compensation are automatic, subject to the following rules:
- You have supplied goods and services
- Your buyer bought the goods and services for business purposes
- The contract is not a consumer credit agreement
The basic rules of what you can claim
Where no rate of interest has been stated in the Terms and Conditions of business, you can claim interest at 8% above the Bank of England Base Rate as it stood at the previous 31st December or 30th June.
Interest can be claimed on invoices not paid within the credit period but that have subsequently been paid with the interest claim starting with the date the invoice should have been paid and ending with the date it was actually paid. To this is added the Compensation amount as stated in the table above, which is dependent on the value of the invoice.
In the event your cost of the collection of the debt exceeds the statutory compensation you may claim for this additional cost as well. While this has not been defined ort fully tested in the courts it would appear that you can claim for the credit control procedures of your business as well as claiming any costs incurred with Debt Collection Agencies or lawyers.
It is likely that in small claims track cases the courts will view reasonable legal costs as being the equivalent of the limited fixed costs which are allowed. It is generally believed you will have more chance of getting a reasonable level of costs if you have a contractual clause allowing you to recover indemnity costs.
As part of our Contractual Advice service Ansell Murray Limited can assist in ensuring this clause is correctly drafted in standard Terms and Conditions of business.
It is important to remember that where you have stated your Terms and Conditions of business within existing customers orders these contracts will continue to be governed by these Terms and Conditions.
To ensure your business is able to claim fully in line with Late Payment legislation you should:
- update all documents on which your Terms and Conditions appear.
- circulate your customers with the revised Terms and Conditions.
- advise your customers when the revised Terms and Conditions will come into effect for future contracts.
Often the prescribed rate of interest in a Contract is stated as a low amount (often as low as 2%) Occasionally your customer’s terms of business may be incorporated into the contract and provide for. In this event, the court may take the view that the interest rate is not substantial enough and that the Late Payment legislation applies. In that case you would be able to claim interest, compensation and costs under the Act, rather than just the low rate in the contract.
Interest and Compensation can be claimed for up to 6 years after the late payment occurred.