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Are you losing thousands of pounds by failing to use the Late Payment law?

Written by Copify | 16 January 2018 11:14:36 Z

Late payment remains one of the biggest problems for UK businesses. However, late payment law is available to protect businesses from late paying customers.

What is late payment law?

Under the Late Payment of Commercial Debts (Interest) Act 1998 and subsequent Regulations, companies can claim interest and also receive fixed sum compensation if a payment is not received or if a payment is late. Although it is only applicable to business transactions, the aim of the Act is to discourage the culture of late payment.

When is a payment late?

If your commercial contract specifies a date upon which payment should be made, it will be considered late if it is not received by this time.

If a commercial contract does not state when payment should be made, the Late Payment of Commercial Debts (Interest) Act 1998 comes into force. Under the law, payment must be made within 30 days of either the invoice being received; the goods/services being received or the goods/services being accepted. If payment is not made within this timeframe, it is classed as late.

How much compensation can I claim?

Late payment compensation can be added to each qualifying debt. The following fixed sums can be claimed as compensation

  • £40 compensation for invoices up to £1,000
  • £70 compensation for invoices between £1,000 - £10,000
  • £100 compensation for invoices over £10,000.
If you have several invoices that are outstanding, the compensation you can claim could be significant.

How much interest can I claim?

Late payment interest is typically claimed at 8% above the Bank of England base rate, but the Court has the discretion to award interest at a rate that it believes is fair. Interest is calculated from the date the invoice becomes due until the date payment is made.

Can I claim the costs of collecting my debts?

Yes. Whilst the compensation is intended to cover the costs of debt collection, this isn’t always the case in practice. If a contract is signed after March 2013, the Late Payment of Commercial Debts Regulations 2013 are applicable and these allow companies to claim back any additional costs of recovering the debt, providing they are reasonable.

Utilising the Late Payment law

Although the law protects businesses from the damaging effects of late payments, some companies and organisations have been reluctant to use it. In some instances, people assume that instigating debt recovery will harm commercial relationships.

However, late payment law can be used to recover debts without souring existing business arrangements. Many businesses that use the late payment law still maintain good relationships with their customers and continue to trade with them. By failing to utilise the late payment law, it could be costing your business thousands of pounds in lost compensation, interest and costs.


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