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Late Payment of Commercial Debts (Interest) Act 1998

Business Team

UK Legislation to support your business retrieve late invoice payments. 

The Late Payment of Commercial Debts (Interest) Act was introduced in 1998 to strengthen the position of UK small businesses when requesting payment on commercial invoices for goods and services rendered.

Initially the statute only held large businesses with 50 or more employees accountable however in 2000 and again in 2002, the statute was widened to permit any private or public entity to be charged interest on invoices which exceeded credit terms to help create a faster payment culture in the UK economy.  

At the same time EU Late Payments Directive was harmonised with the UK regulations to level the playing field across the whole EU member states as economies become more integrated.

Prior to the Late Payments of Commercial Debts Act 1998 the burden was on the Supplier to include specific terms within the initial contract or sue the debtor in a court of law to stand any chance of recuperating late payment debts. This ultimately created an unfair advantage as there was no consequence of large businesses paying invoices late thereby causing financial stress on the smaller supplier which had fewer financial resources at their disposal to challenge larger businesses for unfair payment practices. By introducing this legislation in 1998 meant that for the first time Small businesses had legal grounds set in statute to hold larger businesses to account.

It should be noted however that the Act does not apply to all contracts. It only applies to contracts for the supply of goods and services in a business-to-business context. Consumer contracts (B2C) are not included in the Act, nor does it apply to the international supply of goods where the only connection to the United Kingdom is the choice of law.

Over the years The Act has been refined, adapted and amended however the same principle hasn’t changed in that it is an implied term thereby preventing businesses (usually the offending business) to contract out i.e. attempt to change the rules via pre-agreed contract terms to prevent interest and compensation being charged, or if so, at a reduced rate. Therefore it ought to be noted, even if a business has entered into a written agreement with a supplier and it is found to be unfavourable towards the recipient then the newly agreed terms are said to be null and void and the original statutory terms will apply.

In 2013 The Late Payment of Commercial Debts (Interest) Act was introduced in 1998 was updated to The Late Payment of Commercial Debts Regulations 2013 which enabled businesses to charge a reasonable administrative fee for recuperating the outstanding balance along with the original levy and interest.

Despite the Act existing for over 2 decades, many small businesses are still not aware of it and how it can be used to leverage their position when negotiating with larger firms for prompt payment. At Invoicey we can help you get compensation for monies rightfully owed to you. Simply create a free online account today, upload all your paid and unpaid invoices dating back 6 years and we will calculate how much you could be owed.

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