When any business-to-business invoices are or were not paid on time by customers, the supplier’s business is entitled to seek late payment compensation from such customers, both for a set compensation sum in accordance with the size of the principal sum as shown on each late paid invoice (being £40, £70, or £100) AND interest determined by how late any particular invoice was settled after the payment due date. This applies whether a particular invoice is already late and is awaiting to be paid or was late in being paid in the past, (even though the principal sum is no longer owed).
The compensation is specified within “The Late Payment of Commercial Debts (Interest) Act 1998” and The Late Payment of Commercial Debts Regulations of 2002 and 2013 as may be amended, extended or re-enacted subsequently. Since 1998, suppliers have been entitled to compensation on any late payments by business customers. However due to the statute of limitations, new claims can only be legally enforced on compensation that became due in the last six years up to the time the claim(s) are made.
Click here to see the legislation as is applicable to the UK.
The law was introduced to tackle the culture of late payment and instead promote a culture of prompt payment. It was designed as a deterrent against late payment and it is only through its enforcement that its purpose can be fulfilled.
Since 1998 and as of January 2018, the compensation is due at the following rates applicable to each invoice: – (a) Less than £1,000: £40 (b) £1,000 or more (but less than £10,000): £70 (c) £10,000 or more: £100.
An additional sum in the form of interest is calculated according to the exact number of days the invoice was paid late. The statutory interest rate is set every six months on the 1st January and the 1st July when an annual rate is set at 8% plus the prevailing Bank of England base rate. Interest is calculated, based on the amount of invoice overdue value, then divided by 365 to give the daily rate, which is then multiplied by the total number of days the invoice was overdue prior to being settled. In the event there are other terms set by the supplier, then this rate will apply instead.
Where no clear credit terms were notified or pre-agreed, the compensation legislation is clear that the payment terms would otherwise be 30 days nett from the time the customer is expected to have received the invoice or when the goods/services were supplied, whichever is the later.
This 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.