Amended late payment legislation to enter into force tomorrow

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"