Changes to the Late Payment Of Commercial Debts (Interest) Act
1998, which were made to extend the scope of the Act, are due to
come into force tomorrow (7th August 2002). The 1998 Act was
introduced to give businesses a statutory right to claim interest
from other businesses in respect of late payments under contracts
for the supply of goods and services.
The amendments to the Act will fulfil the UK’s obligations under
the EU Directive on late payment.
Under the amended provisions, from 7th August:
- all businesses (irrespective of size) and public sector bodies
can claim statutory interest for the late payment of commercial
debts;
- creditors will have the right to claim reasonable debt recovery
costs;
- the calculation of statutory interest rate for late payment
will be simplified. The interest rate will be fixed for a six-month
period rather than fluctuating monthly as present; and
- small and medium-sized enterprises have the right to a
representative body, which will challenge grossly unfair contract
terms used by purchasers that may affect the ability to recover
late payment interest. “Representative body" means an organisation
which is “established to represent the collective interests of
small and medium-sized enterprises in general or in a particular
sector or area”.
Under the Act, interest will run from the agreed date of
payment. If no payment has been agreed, interest will start
accruing 30 days from the later of (a) the date when the services
were rendered or goods were delivered or (b) when the purchaser was
notified of the amount of the debt. The rate of interest is a set
statutory rate.
Parties will be free to contract for alternative arrangements,
however, they may reserve the additional right to claim interest
under the Act.
The Act does not apply to contracts with consumers and it only
provides for simple interest.
According to the Department of Trade and Industry, small
businesses are owned £7 billion in late paid bills and
approximately 10,000 UK businesses fail each year as a consequence
of late payment.
The DTI's Small Business Service has published "A User's Guide
to Late Payment Legislation"
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