Folling the Late Payment of Commercial Debts (Interest) Act 1998
Late Payment of Commercial Debts (Interest) Act 1998 applies to those Contracts for the supply or sale of goods or services that fall under the following two categories:
The legislation was introduced as a deterrent to Companies from paying their Bills / Invoices outside of the agreed payment terms. If there is no provision by the Supplier within the contract for a remedy for the late payment of debts (i.e. a % interest charge), then the terms of the Act are implied to that particular contract.
The Act entitles you to charge interest at a rate of 8% above the Bank of England base rate (“reference rate”), covering the six-month period during which the payment of the debt became overdue.
The reference rate referred to above is quoted in The Financial Times daily and can be obtained by visiting their website.
The Act sets a default period of 30 days after which interest can be calculated if no payment terms have been agreed between the parties.
The Act also provides for the provision of compensation to be claimed by the Creditor for the administration incurred in trying to recover the debt from the Debtor.
The compensation rate is fixed as per the table below:
| Amount of Unpaid Debt | Amount of Compensation Payable |
|---|---|
| Under £1,000.00 | £40.00 |
| £1,000.00 - £10,000.00 | £70.00 |
| Over £10,000.00 | £100.00 |
It is recommended that the legislation is used as part of standard business practice and credit management techniques.
If it is the intention of the Supplier to claim interest and compensation pursuant to LPCDA, then this should be made clear to the Debtor on all written communications, credit application forms, purchase order forms, invoices, contracts and Terms & Conditions of Business.
Please be aware that the rights referred to above are not compulsory. It is at the Supplier’s discretion whether or not they wish to make a claim for interest under the LPCDA and to advise the Debtor that in addition to the debt outstanding, interest and compensation will also be claimed pursuant to LPCDA.