Late Payment Law
Late Payment Law
Late Payment Legislation
Late payment legislation applies only to a commercial and/or business to business debt.
Defining Late Payment
If agreed a credit period with a customer, the payment is late if it is not made by the last day of the agreed credit period.
Commercial Debts Act
Calculating Late Payment Interest, Late Payment Compensation, and Late Payment Recovery Costs
Late Payment Legislation
High levels of commercial debt damage the whole economy: business failures, due to a lack of cash flow, result not just in thousands of job losses, but a knock on effect that extends to suppliers, manufacturers and wholesalers, often leading to further job losses.
The UK was one of the first EU countries to recognise the problems caused by late payment and non-payment of commercial debts, and introduced legislation to help combat the problem.
The late Payment of Commercial Debts Act was passed into law in 1998. The Act allows businesses a statutory right to claim and receive interest for goods and services that are not paid for on time.
There have been a number of amendments since by the UK government and the EU, including a provision allowing businesses to claim a fixed amount of compensation from the debtor. A further significant provision was added in 2013 to allow reasonable recovery costs to be added to the debt.
You can read more about the Late Payment Law here
Reasonable Recovery Costs
When a third party such as FDR is instructed to recover the debt, reasonable recovery costs are simply the fee they charge for the work they do in recovering the debt. Commercial recovery and collection practices charge fees from 5% to 20% of the principal debt, therefore recovery costs of up to 20% of the principal debt are deemed reasonable.
Defining Late Payment
Unless payment terms have been agreed the Act sets a 30 day default period. The 30 day default period starts on the day the goods or services are delivered by the creditor.
Late payment interest, compensation and reasonable recovery costs are all legally enforceable.
You can read and download the latest version of the Late Payment of Commercial Debts Act here:
The Late Payment of Commercial Debts Act
Introduction
The Late Payment of Commercial Debts Act applies only to business to business transactions.
Defining Late Payment
If you have agreed a credit period with your supplier, the payment is late if it is not made by the last day of the agreed credit period.
If you have not agreed a specific credit period, then the legislation sets a 30 day default period. The 30 day default period starts on the day the goods or services are delivered by the supplier.
Interest is accrued from the expiry date of the credit period or 30 day default period.
Calculating Late Payment Interest
The interest rate to be claimed is as defined in the Act as 8% above the current Bank of England base interest rate.
Late payment interest is accrued on a daily basis.
Calculating Late Payment Compensation
The statutory compensation amount is fixed and added to the unpaid invoice amount:
Unpaid Invoice : Compensation
Up to £999.99 : £40.00
£1,000 to £9,999.99 : £70.00
£10,000 or more : £100.00