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On the 16th March 2013 new changes will be introduced to the Late Payment of Commercial Debts (Interest) Act 1998 (the “Act”).

It is important for all business to business transactions that the parties are aware of the implications of the Act in terms of payment of monies due and the interest and compensation penalties that apply in the event of late payment.

Current Provisions
The Act is an act that many businesses will already be familiar with. It allows businesses to charge other business customers only interest and compensation on overdue debts arising from the sale of goods, the hiring of goods or the supply of services.

At present statutory interest can be charged from the following:

  1. The date specified within the contract; or
  2. 30 days from the date of the invoice; or
  3. 30 days from the supply of goods / service

In addition to interest, compensation can also be charged on the sums due at the following rates:

  1. for a debt less than £1000, the sum of £40;
  2. for a debt of £1000 or more, but less than £10,000, the sum of £70;
  3. for a debt of £10,000 or more, the sum of £100.

The Act cannot be contracted out of.

Amendments 

From 16 March 2013 the Act will be amended.

In relation to statutory interest it will not begin to run until as follows:

  1. for contracts with a public authority interest will start from 30 days after the latest of:
    1. receiving the supplier’s invoice;
    2. receiving the goods or services; and
    3. a contractually agreed period allowing verification of acceptance of the goods or services by the customer.
  2. in all other circumstances, if the contract is silent on the time for payment, interest will start to run from 30 days after the latest of:
    1. receiving the supplier’s invoice;
    2. receiving the goods or services; and
    3. a contracted agreed period allowing verification of acceptance of the goods or services by the customer.

In relation to time to pay the parties can also contractually agree a due date for payment of up to 60 days, and can contractually agree to extend the due date for payment beyond that if the extension is not “grossly unfair” to the supplier.

Finally the supplier now has a right to compensation for its reasonable costs in recovering the debt where those costs exceed the fixed compensation provisions currently in place.