Your rights under the Late Payment of Commercial Debts (Interest) Act 1998

Chasing for payment after you’ve supplied goods or services can be a time-consuming exercise (not to mention extremely frustrating). It is only right that you should be compensated for the late payment and the effort that goes into extracting the cold, hard cash – to this end, did you know that you may be entitled to claim interest on the debt and recover your costs?

The Late Payment of Commercial Debts (Interest) Act 1998 (Act) inserts an implied term for interest, fixed sum and costs in business-to-business contracts for the supply of goods and services. This note explores your options to reward the effort, time and expense that goes into chasing debtors.

What interest can you claim?

Interest can only be claimed under the Act if there is a contract between the parties – however, a contract does not necessarily need to be in writing and can be formed through words or conduct.

The Act implies a term into business-to business-contracts entitling creditors to claim interest at 8% above the Bank of England’s official Base Rate (at the time of producing this note it was 0.75%)

When interest starts to accrue depends on when the payment is due:

• If there is an agreed date specified, then interest will start running the next day.
• If there is no payment date agreed, then interest starts running 30 days after the latest of delivery, invoice and acceptance. That is, 30 days after you have provided the goods or service, the buyer has notice of the amount of debt and any acceptance procedure is complete (any procedure for checking whether goods or services conform with the contract).

What costs can you claim?

You can also charge a fixed sum for the cost of recovering a late commercial payment in addition to claiming interest.

The amount you are entitled to charge operates on a sliding scale depending on the amount of debt:

• Debt up to £999.99 |  £40
• £1,000 to £9,999.99 |  £70
• £10,000 or more | £100

For contracts made on or after 16 March 2013, if a fixed sum is payable, you also have an implied contractual right to be paid the reasonable costs of recovering the debt, less the fixed sum. These can be for costs such as instructing a debt collection agency, solicitor’s letter and pre-action legal costs, and administrative and internal costs.

Does the Act apply to contracts between businesses and consumers?

No. The rights conveyed under the Act only apply to business to business contracts.

There are also other types of contract that are not covered by the Act, such as security, share sale and employment agreements.

What if the debtor pays late but didn’t pay the interest/costs?

There is nothing in the Act that would prevent you from pursuing a claim in relation to the interest and costs. However, depending on the amount due, it may not be cost-effective or time-efficient to do so.

Should you include the interest and costs claim in your letters of demand?

Absolutely.

The threat of incurring additional expense can be a key factor in focusing the mind of the debtor. In addition, if it comes to negotiating the amount to be paid, offering to forgo the interest and costs claim will always be better than taking a haircut on the underlying debt.

For more information on how we can assist you in recovering a commercial debt contact Tom McCue on 0161 667 3686 or tom@prosperitylaw.com.