Recovery of Late Payment
The purpose of this blog is to consider the recovery of late payment and what costs can be claimed.
The Late Payment of Commercial Debts (Interest) Act 1998
There will be few businesses who are not aware of The Late Payment of Commercial Debts (Interest) Act 1998, although in our experience it is a much under utilised piece of legislation.
Claim Interest & Compensation
To summarise the Act enables you to claim interest at 8% above the prevailing base rate on all late debts and further to claim compensation, at a set level of between £40 and £100 for invoices that are not paid on time. The compensation was designed to reflect the costs of recovering payment and is in addition to court fees and solicitors costs that can be claimed when proceedings are issued.
The payment of interest and compensation can be claimed at any time within the statutory limitation period, normally 6 years. So, in theory, even after the debt has been paid you can go back to the debtor and demand these extra payments.
Compensation for each invoice?
There was some debate as to whether compensation is per invoice or not. This is important because if you supply numerous small value items to a single customer then the entitlement to compensation could be significant and disproportionate to the amount in each invoice.
See Guide on recovery of late payment.
For a guide on claiming under the Act we suggest the following publication be read which explains all that there is to know about claiming interest and compensation, albeit the document possibly goes into too much detail.
http://www.berr.gov.uk/files/file37581.pdf
So what is changing?
The new legislation
The Late Payment of Commercial Debts Regulations 2013 came into force on the 16 March 2013 (the “Regulations”) and they make a number of important changes. They do not have retrospective effect.
(A) where a public authority purchases goods or services, interest starts to accrue on outstanding payments 30 days after the latest of (i) receiving the supplier’s invoice, (ii) receiving the goods or services, and (iii) verification or acceptance of the goods or services (where provided for by statute or contract);
(B)where a business purchases goods or services similar provisions to those above apply where the contract is silent on these matters. However, the parties can agree a due date for payment of up to 60 days after the latest of the events listed above, and, if the extension is not “grossly unfair” to the supplier, can expressly agree to extend the due date for payment beyond that. We have little idea what “grossly unfair is likely to be and the guidance issued is itself devoid of meaning.
Recovery of Reasonable Costs
(c) Perhaps the most important amendment is that in addition to the fixed charge that a supplier may claim as compensation for the cost of recovering a debt referred to above, the supplier can also claim any other reasonable costs of recovery. Any attempt to exclude or limit this right is made subject to the reasonableness test under the Unfair Contract Terms legislation (regardless of whether the contract concerned is on written standard terms, or a individually negotiated agreement). What is a reasonable cost of recovery? We would expect it to include reasonable solicitors costs, reasonable being the operative word. We have seen debt recovery agents charging thousands of pounds to try to recover a debt when a solicitor would charge no more than £100; we doubt this would be reasonable!
If you have a debt that needs recovery then speak to Matthew Dillon of MJD Solicitors
