The Late Payment of Commercial Debts legislation has two purposes. Firstly, to compensate creditors for the late payment of debts. Secondly, to deter late payment. It came into force in stages between November 1998 and August 2002. It came fully into force on 7th August 2002 as The Late Payment of Commercial Debts (Interest) Act 1998.
When you can claim
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)
- The order was placed after 6/8/02
Supplies made on or after 7/8/2002
For supplies made on or after 7th August both interest and compensation can be claimed.
Interest
You can claim interest at 8% over Bank of England Base Rate (at the previous 31st December or 30th June).
You can claim interest 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.
Compensation
You can claim compensation for every invoice that was not paid within the credit period. You can claim compensation even if the invoice has now been paid. You have up to 6 years to claim the compensation.
The amount of compensation you can claim is:-
| Invoice Amount | Compensation |
|---|---|
| Up to £999.99 | £40 per invoice |
| £1000 - £9,999.99 | £70 per invoice |
| Over £10,000.00 | £100 per invoice |
You can find a useful guide here.
Supplies made before 7/8/2002
For supplies of goods or services made between 1/11/1998 and 6/8/2002 the position is as follows:-
- From 1/11/1998 to 31/10/2000 small businesses could claim Late Payment Interest from large businesses (or the public sector). A small business is one with 50 employees or fewer and a large business is one with more than 50 employees.
- From 1/11/2000 to 6/8/2002 small businesses could also claim Late Payment Interest from other small businesses.
Inform your customers you will be claiming
You do not need to take any formal steps to claim either Late Payment interest or compensation. However, you may want to let your customers know you intend to rely on the legislation. This may encourage them to pay on time! You could put statements to this effect on your invoices, your statements and in your terms of business.
Changing your terms of business
You are not entitled to late payment interest and compensation if your terms of business already provide for interest on overdue invoices.
You may want to change your terms of business and rely on the Late Payment legislation. If you do, make sure your customers know. You should:-
- update all documents on which your Terms and Conditions appear.
- circulate your customers with the revised Terms and Conditions.
- advise your customers when the revised Terms and Conditions will come into effect.
N.B. Existing contracts will continue to be governed by the Terms and Conditions which applied at the time they were entered into.
Claim late payment interest and compensation
As soon as a payment is overdue you can, if you wish, issue an invoice for the compensation and, in due course, interest. The following is the sort of information it would be helpful for the invoice to show:-
- How much interest and compensation is owed
- 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, it is not necessary to have issued invoices for the compensation or interest to be able to claim them in the LPD or in proceedings.
If you can't send an LPD because your contract contains a provision for interest, you could claim contractual interest in your LBA.
Back
