Late Payment of Commercial Debts (Interest) Act 1998
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The Late Payment of Commercial Debts (Interest) Act 1998 is an Act of the United Kingdom Parliament enabling small businesses to charge larger business customers interest on overdue accounts.The Act extends to Northern Ireland.
A small business is defined as one with 50 or fewer employees. A large business is defined as one with more than 50 employees or a public sector organisation of any size whatsoever.
The right to charge interest applies to overdue accounts relating to a sale of goods, the hiring of goods or to a supply of services.
Interest can accrue from the latest of
- 30 days after the goods are supplied or the service is completed,
- 30 days after receipt of invoice (or the customer is told the amount due is payable).
- the agreed date for payment.
The interest rate chargeable, which is simple and not compound, is the Bank of England base rate plus 8%. The increment was set to allow the small business to cover late payments by bank borrowings.
It is only possible to 'contract out' of the statutory interest requirements if the contract provides a substantial remedy for late payment.
[edit] Arrangement
The Act consists of three parts.
- Part I Statutory Interest On Qualifying Debts
- Part II Contract terms relating to late payment of qualifying debts
- Part III General and supplementary
[edit] Amendments
- Late Payment of Commercial Debts Regulations 2002.
However, from 1st November 2000 small businesses have also been able to claim statutory interest from other small businesses.
From 1st November 2002, all businesses, including public sector organisations have been entitled to claim interest from any other business or organisation, (including small businesses).
