Late Payment Legislation

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From 7 August 2002, the Late Payment of Commercial Debts (Interest) Act 1998 was amended and supplemented to incorporate the features of European Directive 2000/35/EC on combating late payment in commercial transactions. Under the revised legislation, all business owners and managers can claim reasonable debt recovery costs and can benefit from the simplification of the calculation of Statutory Interest. Additionally small and medium sized businesses can ask a representative body to challenge unfair contract terms used by their customers which do not provide a substantial remedy for late payment of commercial debts. The compensation entitlement varies in accordance with the size of the debt. It is common practice to employ a debt collection agent to collect ageing debt. Often the agent can collect the debt without any charge, simply by claiming the interest due aon the debt and late payment fees as their payment for collecting the debt. If legal action becomes necessary then the customer pays the fees which can be claimed back from the debtor should the legal action be successful. Interest may not be charged against debts with businesses or organisations, not individuals. In addition you should have proof that you have attempted to contact the debtor to chase the debt. Hence its important to have an effective credit control department with records of contacts made.

Late Payment of Commercial Debts (Interest) Act 1998

The Late Payment of Commercial Debts (Interest Act) 1998 came into force to in order to induce payments on time and to discipline bad payers. This legislation only refers to commercial debts. It cannot be applied when one of the parties does not act as a business. Both parties need to be commercial entities or public sector organisations.

Once the legislation was introduced it was decided it would be brought in stages. This means that different rules apply depending on the date the contract was agreed.

For contracts formed on or after 7th August 2002 an additional interest can be charged which consists of a late payment charge (LPC) and interest on the debt. An LPC is charged against each invoice overdue plus interest. The interest rate which applies to your debt is identified as follows: For contracts dated prior to 7th August 2002 the late payment interest rate is 8% plus the Bank of England base rate that was in place on the day the debt became overdue.

CURRENT INTEREST AND LATE PAYMENT COMPENSATION RATES
For contracts dated on or after 7th August 2002 the late payment interest rate is 8% plus the reference rate. From the first of July 2009 the reference rate has been 0.5% (this page last updated Nov 2012).

Hence the current interest rate stands at 8.5%. The Late Payment Compensation amount below can also be added to EACH INVOICE outstanding.

An effective credit control service should minimise the number of invoices that need to be referred to debt collection. The longer an invoice is left unpaid the less chance it is that it will ever be settled. Contact TAK-Outsourcing to hear how we can help you improve your cashflow.