| FAQ about late payment law | ||
| (1) Is it legal? | ||
| (2) Do I have to tell customers I will use it when I contract with them? | ||
| (3) Do I have to include late payment interest and late payment compensation in my terms? | ||
| (4) Is late payment compensation payable on the total claim or on each individual invoice? | ||
| (5) Do I have to invoice Late Payment interest and Compensation? | ||
| (6) Will I lose my customers by using Late Payment law? | ||
| (7) When does the Court have a discretion not to award Late Payment Penalties? | ||
| (8) What is the effect of delay on Late Payment Penalties | ||
| (1) Is it legal? | ||
| Completely. Here is the law. The Late Payment of Commercial Debts (Interest) Act 1998 is the statute which inserts a term as to payment of Late Payment Interest into your agreement with your customer. He can not excude this requirement in his own terms. | ||
| The Late Payment of Commercial Debts Regulations 2002 is the statutory instrument which gives you a right to late payment compensation every time one of your invoices is paid late. | ||
| Article 3 of the Directive of the European Parliament and of the Council of 29th June 2000 is a European enactment on combatting late payment in commercial transactions. It provided that interest will become payable immediately a debt is due. It mandates that if there is no period fixed by contract then a debt must be paid within 30 days of the invoice. This is binding on the UK Parliament adn has been enacted by them in the statute mentioned above. | ||
| (2) Do I have to tell customers I will use late payment law when I contract with them? | ||
| You do not have to do so but why not? The only customers it will discourage are those who do not intend to pay you when they contract with you. | ||
| (3) Do I have to include the right to late payment interest and late payment compensation in my terms? | ||
| No. The law implies a term into your agreement that you can recover late payment interest and late payment compensation. The only way you will lose your right is if your terms and conditions give you a different entitlement to interest or penalties. It is rarely worth doing this. Anything you gain by so doing is undone by the difficulty of calculating and suing for what you have reserved. At the bottom left of the page you will find a side tab leading to a draft term which incorporates late payment law expressly. Replace your current provision with this to ensure your debts qualify to late payment interest and late payment penalties. | ||
| (4) Is late payment compensation payable on the total of my claim or in individual late paid invoices? | ||
| It is payable on individual late paid invoices. So if your claim is for 10 invoices of £1000 each you recover 10 * £40, i.e £400, not just £70 (which would be the amount of compensation for one late paid invoice only of £1000 in value). In a case called Ruttle Plant Hire Ltd v Secretary of State for the Environment, Food and Rural Affairs [2008] EWHC 730 (TCC) a High Court Judge accepted that late payment compensation was payable on each individual invoice, not to the total amount claimed. Click here to see the difference this can make. | ||
| (5) Do I have to invoice late payment interest and compensation? | ||
| No. It is a bad idea to do this unless the debt has previously been paid. Late Payment Interest and Compensation work best for you as payment incentives to get payments in without the need for legal proceedings. Where is the incentive to pay if you are going to demand it anyway? If after fair warning and a reasonable chance to avoid the penalties the debtor still ignores your debt and you sue, then don't waste your time invoicing them. Debtclaims.com automatically adds them into your claim as some compensation for the trouble the debtor has put you to as well as compensation for his use of your money. | ||
| (6) Will I lose my customers through using late payment law? | ||
| No. You never lose a customer by using late payment law properly. On the contrary you provide an inducement to your customer to pay within terms. If a customer goes away it will not be because you used late payment law. It will be because you want to be paid. Late payment penalties are payable on all late paid debts, even after they have been paid, going back for 6 years. A customer who threatens to withdraw custom because you require payment as agreed may face, if you wish to do this, a claim going back 6 years for late payment interest and late payment penalties on every previous late payment he has made. See our 'Back Penalties' side tab. | ||
| (7) When does the Court have a discretion not to award Late Payment Penalties? | ||
| Section 5 of the Act provides: | ||
| Remission of statutory interest | ||
| 1) This section applies where, by reason of any conduct of the supplier, the interests of justice require that statutory interest should be remitted in whole or part in respect of a period for which it would otherwise run in relation to a qualifying debt. 2) If the interests of justice require that the supplier should receive no statutory interest for a period, statutory interest shall not run for that period. 3) If the interests of justice require that the supplier should receive statutory interest at a reduced rate for a period, statutory interest shall run at such rate as meets the justice of the case for that period. 4) Remission of statutory interest under this section may be required (a) by reason of conduct at any time (whether before or after the time at which the debt is created); and (b) for the whole period for which statutory interest would otherwise run or for one or more parts of that period. 5) In this section ‘conduct’ includes any act or omission.” | ||
| Two points to note are that (1) no guidance is given in the Act as to when the discretion should be exercised and (2) the Act does not purport to confer any discretion to disallow Late Payment Compensation where the debt is a qualifying debt. | ||
| (8) What is the effect of delay? | ||
| This is still being worked out by the Courts. The court may reduce the interest rate for delay under section 5 of the Late Payment of Commercial Debts (Interest) Act 1998. It is arguable whether they should as it amounts to a fine on earlier tolerance. The Act is unhelpfully silent on the basis of exercise of the discretion. If a court did reduce your interest entitlements due to delay it is highly unlikley they would reduce it below the 8% judgment rate. You will, however remain elegible for the late payment compensation on every late paid invoice. | ||
| Delay may result in the debtor being relieved of the obligation to pay late payment interest for the whole or part of the period of delayed payment. | ||
| Be careful if your invoices were too high initially. In Ruttle Plant Hire v Secretray of State for the Environment Farming and Rural Affairs [2008] EWHC 730 TCC the Judge reduced the interest rate to base plus 2% in a claim where Ruttle had initially invoiced too much and DEFRA paid (eventually) only after they had invoiced on the correct basis. | ||
| Another instance where the court has intervened to reduce the rate of late payment interest for delay is Banham Marshalls Services Unlimited v Lincolnshire County Council and Others [2007] EWHC 402 (QB). There Eady J awared interest for a condiserable part of the period of delay at the ordinary court rate and not the late payment rate because the case had been disputed in a bona fide way even though the Defendant has lost the dispute. However Eady J did say, helpfully, at paragraph 72: | ||
| "72. Although I am conscious that there is, from a moral or public policy perspective, a distinction to be drawn between those who choose not to pay their outstanding debts and those who refuse to pay because of a genuine legal dispute, it would be wrong for me to approach the issue on the basis that the statutory interest is not to apply at all in cases of bona fide dispute. That would be to detract from the broad discretion which Parliament clearly intended when formulating s.5 in the terms set out above." | ||