Late Payment Problems

The Late Payment of Commercial Debts (Interest) Act 1998 gives businesses a statutory right to claim interest if another business pays its bills late.

The most significant effects of the Act are:-

• Interest is highly punitive and set at 8% over base rate at the end of the day on which the contract says that payment is due to be made.
  
  
• Interest starts to run after the "relevant day for the debt". The "relevant day" is the last day of any agreed credit period and in the absence of such an agreement the "relevant day" is the later of either:-
  
  
• 30 days after the supplier's obligation has been performed, or
  
  
• 30 days after the purchaser has notice of the amount due.
  
  
• When payment is late the supplier of the goods and services should inform the purchasing party that the claim for interest on late payment will be made.
  
  
• A supplier has six years in which to make a claim,
  
  
• Any contractual attempt to exclude the provisions of the Act will be void unless there is a "substantial" contractual remedy for late payment of the debt.
  
  
• The statutory right to claim interest is not compulsory. Once a claim is made a supplier is free to abandon or withdraw the claim.

When first introduced the Act allowed only small businesses to claim interest from large businesses and most of the public sector. With effect from 7th August 2002 any party engaged in a commercial transaction can claim interest from the late payer.

To date businesses seem to be slow in using the provisions of the Act presumably because suppliers do not wish to unnecessarily upset purchasers. Nevertheless, late payment can seriously disrupt cash flow and utilization of the Act's provisions can be an extremely effective means of debt recovery.