Pearson Hinchliffe Financial Services - Advising - Supporting - Delivering

E-mail: enquiries@pearson-hinchliffe.co.uk | Telephone: 0161 785 3500

Claiming Interest and Compensation on Commercial Debts

Your business could be losing out on the right to claim compensation for recovering your unpaid invoices or invoices which are paid late, together with claiming a higher rate of interest.

The Late Payment of Commercial Debts (Interest) Act 1998 gives businesses a statutory right to claim compensation and interest from other businesses for the late payment of commercial debts.

Under the Act, all business owners and managers can claim reasonable debt recovery costs and  can benefit from the simplification of the calculation of Statutory Interest. If you are seeking to recover a debt, remember that you may be able to claim a higher rate of interest other than the statutory interest of 8% by using the Late Payment of Commercial Debts (Interest) Act 1998.

The Act has two functions in that it compensates creditors for the late payment of debts and secondly, it deters late payment.

You can claim Late Payment Interest and Compensation if:

• You have supplied goods and services
• Your buyer bought for business purposes
• The contract is not a consumer credit agreement
• The contract does not contain a provision for interest on overdue invoices (or any other substantial remedy for non payment).

Compensation

Broadly speaking, if no credit period has been specified by the supplier, the Act allows a default 30 day period for bills to be paid.

The Act allows you to claim compensation for every invoice that was not paid within the credit period. The amount of compensation you can claim is £40 on a debt up to £1,000, £70 on a debt of up to £10,000 and £100 over £10,000 on each invoice. You can claim compensation even if the invoice has now been paid and you have up to 6 years to claim the compensation.

Interest

After the expiry of the credit period, the creditor can recover interest at 8% over the Bank of England Base Rate. Interest can be claimed for the period starting with the date the invoice should have been paid and ending with the date it was actually paid.

You are able to claim interest on invoices that were not paid within the credit period but have since been paid and again, you have up to 6 years to claim the interest.

Whilst there are provisions restricting contracting out, it is true to say that businesses are free to provide different contractual remedies for late payment in their documentation. Nevertheless, the 1998 Act is often overlooked.

The supplier can simply advise the purchaser orally that interest will be claimed, although it is advisable to put this in writing. The rate of interest that can be claimed is far higher than might be expected, so it is important to remember these provisions.

It is important you tell your customers clearly in writing that if payment is not received after the 30 day credit period, interest will be incurred thereafter, and at the same time the contract is made you will exercise your right to resort to the 1998 Act if payment is late.

Pearson Hinchliffe Financial Services | Hollinwood Business Centre, Albert Street, Hollinwood, Gtr Manchester, OL8 3QL
Telephone: +44 (0)161 785 3500, Fax: +44 (0)161 624 2589, Email: enquiries@pearson-hinchliffe.co.uk