The Late Payment of Commercial Debts (Interest) Act 1998

(as amended and supplemented by the Late Payment of Commercial Debts regulations 2002)

Under The Late Payment of Commercial Debts Interest Act 1998 for Business to Business debts (B2B) you can claim extra amounts in addition to your overdue invoice total. A business to business debt does not, as some think, have to be between Limited companies. It can be between two sole traders, a partnership, or a sole trader owing money to a Limited (LTD) company or any combination.

This does not apply to consumer (members of the public) debts.

You do not need to have told your customers that you will claim Late Payment interest or compensation (if they fail to pay on time) before they have actually breached your payment terms.

As soon as a payment is overdue you can, if you wish, claim the compensation and, in due course, interest. You don't issue an invoice for either the compensation or interest. You just write and tell your customer the amount due. Why not use our FREE Late Payment Compensation Calculator to calculate your entitlement and produce your late payment letter.

You can claim Late Payment Interest and Compensation if:

• you have supplied goods and services
• your buyer bought for business purposes
• the contract is not a consumer credit agreement
• the contract does not contain a provision for interest on overdue invoices (or any other substantial remedy for non payment)

Why should I be using late payment legislation?

This legislation enables you to claim extra amounts in addition to your overdue invoice total.

The Late Payment of Commercial Debts (Interest) Act 1998, as amended by the Late Payment of Commercial Debts Regulations 2002 provides all businesses and the public sector with 4 entitlements:

• the right to claim interest for late payment
• the right to claim reasonable debt recovery costs, unless the supplier has acted unreasonably
• the right to challenge contractual terms that do not provide a substantial remedy against late payment
• the right for "representative bodies" to challenge contractual terms that are grossly unfair on behalf of SMEs

Which of my customers does late payment legislation apply to?

A business to business debt does not, as some think, have to be between Limited companies. It can be between two sole traders, a partnership, or a sole trader owing money to a Limited (LTD) company or any combination.

This does not apply to consumer (members of the public) debts.

How best can I inform my customers that I use the legislation?

In addition to informing purchasers verbally of the right to charge interest and/or claim compensation for debt recovery costs as part of standard payment terms, suppliers should state clearly on all written communications, credit application forms, order confirmations, invoices and all contracts.

a common example:

"We reserve the right to claim statutory interest at 8% above the Bank of England reference rate in force on the date the debt becomes overdue and at any subsequent rate where the reference rate changes and the debt remains unpaid in accordance with the Late Payment of Commercial Debts (Interest) Act 1998 as amended and supplemented by the Late Payment of Commercial Debts Regulations 2002."

Don't I risk antagonising my customers if I use this legislation?

Using the legislation is your statutory right and is not designed to jeopardise existing customer relationships. Rather than seeking to encourage claims for interest the legislation's primary aim is to deter companies from paying their bills late. By treating it as an integral part of your payment terms customers will become educated that this is part of the way that you like to do business.

Where can I get help applying the legislation?

Use can use our free Late Payment Compensation Calculator, it will calculate your entitlement and also you can optionally download an example demand letter.

How is statutory compensation calculated?

This is designed to compensate you for your debt collection costs. It is calculated on a per invoice basis, so if you had a £999 debt made up from 1 invoice you would be entitled to one payment of statutory compensation ie £40, if the same debt was made up from 3 overdue invoices you are entitled to 3 x £40 = £120 late payment compensation.

You can use our free Late Payment Compensation Calculator to help you calculate your statutory compensation entitlement.

Statutory compensation is calculated as follows:

How much is statutory interest?

You are entitled to charge statutory interest. This is calculated at 8% above the Bank of England base rate. It is calculated on a per invoice basis from the date the invoice became overdue.

Use our free Late Payment Compensation Calculator to see how much interest you are entitled to.

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