Late payment legislation introducing measures to compel debtors to pay on time was implemented under The Late Payment of Commercial Debts (Interest) Act 1998.

Under normal circumstances, ‘payment on time’ is considered as 60 days for businesses and 30 days for public authorities.

Despite the fact that the Act has been in existence for 16 years, many suppliers of goods and services, particularly those that are small businesses, are still unaware of it or fail to take advantage of it.

The purpose of the legislation is not only to compensate creditors for late payment but also to discourage debtors from late payment. It affords a statutory right to claim interest plus a fixed sum and reasonable costs for recovering the debt.

The interest payable for late payment is 8% above the Bank of England base rate which is set once every six months as the 'reference rate' on 31 December and 30 June.

The current base rate is 0.5%. Calculating the total interest payable is as simple as this; debt x interest rate x the number of days late 365 The start date for interest under the Act takes into account when the contract was made and is dependent on whether the contract specifies a date for payment.

Once interest begins to run under the Late Payment Act the supplier is entitled to a fixed sum in addition to the interest on the debt, which can be claimed on each outstanding invoice. The sum payable is dependent on the amount of each invoice, as set out below.

• A debt below £1,000 has a fixed sum of £40;

• A debt of at least £1,000 but less than £10,000 has a fixed sum of £70;

• A debt of £10,000 or more has a fixed sum of £100.

The creditor also has an implied contractual right to be paid the reasonable costs of recovering the debt, less the fixed sum. It would be expected for the court to consider ‘reasonable costs’ as those that would normally be recovered in litigation.

Whether or not you choose to enforce payment of the interest and compensation, it is often the case that the mere demand for payment in your letters before action to your debtors is enough to encourage them to pay the overdue invoices without the need for you to resort to legal action.

If you would like more information about the Late Payment of Commercial Debts (Interest) Act 1998, the Late Payment of Commercial Debts Regulations 2002 and the Late Payment of Commercial Debts Regulations 2013 or indeed require any advice on collecting your debts, please contact Dan Elsworth at Lupton Fawcett Denison Till Solicitors on 01904 611411 dan.elsworth@lf-dt.com.

- Daniel Elsworth