In short
Statutory interest, fixed compensation and recovery costs on qualifying commercial debts — and the circumstances in which they do not apply.
What the legislation provides
For qualifying commercial transactions, the Late Payment of Commercial Debts (Interest) Act 1998 can imply a term entitling the supplier to interest on a late payment, calculated by reference to the Bank of England base rate plus a statutory margin, together with a fixed sum of compensation per invoice and, in some circumstances, reasonable recovery costs above that fixed sum.
When it does not apply
The statutory scheme does not apply to every debt. It concerns qualifying commercial contracts for the supply of goods or services between businesses, and contractual terms which provide a substantial remedy for late payment can displace the statutory implied term.
Where your own terms specify an interest rate, that rate is usually the starting point rather than the statutory rate.
Using it correctly
Interest should be calculated to the correct dates on the correct principal, with part payments accounted for. Compensation is claimed per qualifying invoice. Overstating either weakens the credibility of the demand.
Frequently asked
- Does claiming interest make the service free?
- No. Whether interest, compensation or recovery costs are actually recovered depends on the debtor and the outcome. They should never be presented as a guarantee that recovery costs you nothing.
Sources & references
- Civil Procedure Rules and the Practice Direction on Pre-Action Conduct and Protocols
- Pre-Action Protocol for Debt Claims
- Late Payment of Commercial Debts (Interest) Act 1998
- [INSERT ADDITIONAL VERIFIED SOURCES USED FOR THIS GUIDE]
This guide is general information only and does not constitute legal advice. Procedures described relate principally to England and Wales. Every matter is assessed on its own facts and contractual documentation.