"The aim of the legislation is to deter late payments rather than to invite claims for interest and compensation."

 

For further information or assistance please contact:

 

Jonathan T R Silverman
jtrs@silvermansherliker.co.uk


or

John C Abbott
jca@silvermansherliker.co.uk

020 7749 2700



Silverman Sherliker LLP
SOLICITORS

7 Bath Place, London
EC2A 3DR
Telephone: 020 7749 2700

Facsimile:020 7739 4309
email:mail@silvermansherliker.co.uk
www.silvermansherliker.co.uk
DX 137779 FINSBURY 5

 

Late Payment of Commercial Debt

The late or non-payment of invoices has the most damaging effect on SME’s. Commercial companies are now able to take a firmer stance with regard to late payments as a result of the Late Payment of Commercial Debts Regulations 2002’. Under the earlier ‘Late Payment of Commercial Debts (Interest) Act 1998, small businesses were able to claim interest from large businesses. The 2002 Act goes further to help SME’s with debt recovery.

The Act

From 7 August 2002 the Late Payment Legislation provided businesses with the following entitlements:

The right to claim interest for late payments

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 SME’s.

Using the legislation is a statutory right and is not designed to put at risk existing business relationships. The aim of the legislation is to deter late payments rather than to invite claims for interest and compensation.

When is a payment late?

A payment is late after the last day of a credit period that has been agreed between the supplier and purchaser.

If no credit period has been agreed, then the Act sets a standard period of 30 days. However, this period does not constitute a statutory credit period. Where there is no agreed time limit, the 30-day default starts from the later of:

The moment the goods are delivered or service performed

The day the purchaser has notice of the amount of the debt

Some purchasers and suppliers have long standing relationships whereby it is standard practice for the purchaser to pay at the end of the month. Payment will be considered late on the first day of the following month.

Advance Payments

Contracts can require some payment to be made in advance. The Act does not give the right to interest unless some of the goods have been delivered or part of the service performed. If the parties wish to agree otherwise, they need to make provision in the contract.

If the whole payment is required prior to delivery, and no payment is made, the statutory interest starts to run from the day the goods are delivered.

If payment is due in instalments, the statutory interest runs from the day after the goods are delivered or service is performed.

How to claim

When the payment is late, the supplier must inform the purchaser that they are going to claim interest under the Legislation.

When informing a purchaser the following details must be conveyed:

The amount of interest being claimed

The amount of existing debt owed and what it is owed for

To whom the payment should be made and by what date

To what address the payment should be sent and by what method.

The legislation is not compulsory. A supplier is able to decide whether or not to make a claim. The period for making a claim for late payment interest is six years from the invoice date.

How much can be claimed?

The current rate of late payment interest is 12%. This is derived from the Bank of England Base Rate of 4% plus 8% statutory rate in accordance with the Act. The EC rate is 10.25%, Base Rate of 3.25% and 7% statutory interest.

EC Implications

The legislation brings the UK into line with the EC Directive on late payments. For those exporting from the UK they will be able to apply interest, but also EC traders will be able to apply their own penalties, whether in the Terms and Conditions of sale or not.

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