The Late Payment of Commercial Debts (Interest) Act 1998 was brought into place for two reasons. The first is to compensate those who had been victims of late payments and secondly to deter late payment.
In short, a commercial creditor is entitled to claim interest and compensation on any invoices that are not paid on time plus reasonable costs of collecting the debt. Interest can be claimed at 8% over the Bank of England base rate together with compensation at the rate of £40 – £100 per invoice.
You can claim Late Payment Interest, Compensation and Cost if:
- You have supplied goods and/ or services;
- Your buyer bought for business purposes;
- The contract is not a consumer credit agreement; and
- The contract does not contain a provision for interest.
At what point is the interest normally payable?
Interest is normally payable from the end of the agreed credit period.
If no credit period was agreed, interest is payable 30 days from the later of:
- the date of supply, or
- the date the buyer was told the amount due
- the conclusion of any procedure for checking that the goods conform to the contract (and the procedure itself cannot take more than 30 days)
If you supply a public authority, interest will be payable after 30 days, even if a longer payment date was agreed. You cannot agree to extend the 30-day period.
If you supply another business, interest will normally be payable after 60 days even if a longer payment date was agreed. However, a credit period of more than 60 days can be agreed if it is not grossly unfair to the supplier.
How much compensation can I claim?
If you have a clause relating to late payment in your terms and conditions, you must charge compensation in line with the amount stated. If not, you are able to charge compensation as specified by the Late Payment of Commercial Debts (Interest) Act 1998.
The amount of compensation you can claim is:
- For invoices up to £999.99, you can claim £40 per invoice
- For invoices from £1,000 – £9,999.99, you can claim £70 per invoice
- For invoices over £10,000.00, you can claim £100 per invoice
You can find a useful guide to the Act as originally implemented and useful information on the gov.uk site.
Can I claim a late payment once the debt has been paid?
You can claim interest and compensation on invoices that were not paid within the credit period but have since been paid. Interest can be claimed for the period starting with the date the invoice should have been paid and ending with the date it was actually paid.
You have up to 6 years to claim the interest and compensation.
How and when can I make a claim?
As soon as a payment is overdue you can, if you wish, claim the compensation and, in due course, interest. You can claim the reasonable costs of recovering the debt as and when they are incurred. You don’t issue an invoice for the interest, compensation, or costs. You just write and tell your customer the amount due.
When you claim interest, compensation, or costs, it would be helpful to tell your customer:
- How much is due for interest, compensation and costs
- What it is owed for e.g. give the invoice number for the principal debt
- How payment should be made:
- To whom
- By what date
- To what address and
- By what method
However, you don’t need to have sent any previous warning letter to your customer to claim interest, compensation or costs.
If you can’t send an LPD (Late Payment Demand) because your contract contains a provision for interest, you could claim contractual interest in your LBA (Letter Before Action).