A User's Guide to late payment legislation - The Late Payment of Commercial Debts (Interest) Act 1998, as amended and supplemented by the Late Payment of Commercial Debts Regulations 2002

Introduction

Your rights

The United Kingdom was one of the first countries in the European Union to implement late payment legislation to help promote a culture of prompt payment. There has been a statutory right to interest for late payment for small firms owed money by large firms or the public sector since 1 November 1998, when the Late Payment of Commercial Debts (Interest) Act 1998 came into force. The Act was to have been introduced in 3 distinct phases and until 7 August 2002 phase 2 is in force. This allows small businesses to charge each other statutory interest, as well as large businesses and the public sector, for the late payment of commercial debt.

Amended late payment legislation will come into force on 7 August 2002. This legislation will fulfil the UK's obligations under the European Directive 2000/35/EC on combating late payment in commercial transactions, and has been prepared taking into account responses to the consultation that was held in Spring 2001.

The results of this consultation, together with work done by the Small Business Service and other Government Departments, have led to the development and extension of the United Kingdom's existing late payment legislation.

What is meant by "late payment legislation" ?

The phrase "late payment legislation" refers to the amended Late Payment of Commercial Debts (Interest) Act 1998 and the Late Payment of Commercial Debts Regulations 2002.

Changes to the Late payment Legislation

• An extension of the scope of the late payment legislation
• Creditors will be entitled to "reasonable" debt recovery costs
• The right for an appropriate representative body" to challenge grossly unfair contractual terms on behalf of SMEs
• The simplification of the calculation of the interest rate for late payment

The statutory right to claim interest and the other entitlements being made available from 7 August 2002 are not compulsory and it is for the supplier to decide whether or not to use rights made available.

Part of maintaining any successful business is good cashflow management and the late payment legislation can help you with your credit management.

Legal Warning

The User's Guide has been prepared to provide general guidance only. This guide does not constitute legal advice and reliance ought not to be placed on it. No liability can be accepted by the authors or publishers for its contents. The interpretation of the law on late payment is ultimately a matter for the courts, and users should take their own advice where appropriate.