Late Payment Law
Late Payment Law
Late Payment Legislation
Late payment legislation applies only to a commercial and/or business to business debt.
Defining Late Payment
If agreed a credit period with a customer, the payment is late if it is not made by the last day of the agreed credit period.
Late Payment Charges
Calculating Late Payment Interest, Late Payment Compensation, and Late Payment Recovery Costs
Late Payment Legislation
Late payments constitute a major obstacle to the free movement of goods and services and can substantially distort competition. The resulting administrative and financial burdens impede trade and increases costs. Small and medium-sized enterprises (SMEs) are the most vulnerable.
The government, therefore, has introduced legislation aimed at creating an environment where paying on time is the norm and late payment is seen to be unacceptable across the business community.
The United Kingdom was one of the first countries in the European Union to implement late payment legislation to help promote the culture of prompt payment. There has been late payment legislation since 1998 which saw a statutory right to interest for late payment for small business since 1998 from large firms and the public sector, and from small firms since 2002.
The Late Payment of Commercial Debts (Amendment) Regulations 2018 which came into force in February 2018 was a further amendment to the original Late Payment of Commercial Debts (Interest) Act 1998 (the ‘Act’). The Act has two purposes – to deter late payment and to compensate creditors for the late payment of debts.
The Act and Regulations apply to contracts for the supply of goods or services where both parties are acting in the course of business (subject to some exceptions). It allows creditors to claim interest, a fixed sum of compensation and the reasonable costs of collecting the debt.
“Late payment” specifically refers to when a business has been supplied goods or services but has yet to pay for the goods or services received within the agreed time period. If payment terms were never explicitly agreed upon, then legally it is assumed that payment is due after 30 days.
Nearly a quarter of UK businesses report that late payments are a threat to their survival. Tackling them represents a huge opportunity for economic growth, with research from the Federation of Small Businesses suggesting it could add £2.5 billion to the UK economy and keep an extra 50,000 businesses open each year.
Late payment legislation provides businesses with the ability to not only get paid, but to hit their debtors where it hurts – in their pockets - at no additional cost to themselves.
You can read more about the Late Payment Law here
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Defining Late Payment
If you have agreed a credit period with a customer, the payment is late if it is not made by the last day of the agreed credit period.
If you have not agreed a specific credit period, then the legislation sets a 30 day default period. The 30 day default period starts on the day the goods or services are delivered by the supplier.
Interest is accrued from the expiry date of the credit period or 30 day default period.
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Late Payment Charges
Defining Late Payment
If you have agreed a credit period with a customer, the payment is late if it is not made by the last day of the agreed credit period.
If you have not agreed a specific credit period, then the legislation sets a 30 day default period. The 30 day default period starts on the day the goods or services are delivered by the supplier.
Interest is accrued from the expiry date of the credit period or 30 day default period.
Calculating Late Payment Interest
Interest rates are referred to as reference rates and are fixed in two standard six month periods, 1st January – 30th June and 1st July – 31st December. The reference rate is the Bank of England interest rate on the first day of the six month period.
The interest rate to be claimed is the reference rate from the six month period that the payment became late plus 8%.
Late payment interest is accrued on a daily basis.
Calculating Late Payment Compensation
Compensation can be charged in addition to interest. The amounts are fixed and apply to each invoice that makes up the unpaid debt:
Unpaid Invoice Compensation
Up to £999.99 £40.00
£1,000 to £9,999.99 £70.00
£10,000 or more £100.00
Calculating Late Payment Recovery Costs
Late payment legislation allows creditors to claim the reasonable costs of recovering a debt including the use of a third party. Reasonable costs are easier to quantify with the use of a third party such as FreeDebt Recovery, as the reasonable costs are simply the recovery fee we charge to the debtor.
Read and download the latest legislation here