The Late Payment of Commercial Debts Regulations 2013


As the name suggests, this legislation is only applicable to 'commercial debts'  - i.e. where both parties are acting as part of a business.   From 7 August 2002 the late payment legislation provided all businesses and the public sector with 4 entitlements:


  1. the right to claim interest for late payment 
  2. the right to claim reasonable debt recovery costs, unless the supplier has acted unreasonably 
  3. the right to challenge contractual terms that do not provide a substantial remedy against late payment 
  4. the right for "representative bodies" to challenge contractual terms that are grossly unfair on behalf of SMEs.

 From 16 march 2013 the late payment legislation was amended with the main changes being that:


-Private sector businesses must pay within 60 days;
-Public sector businesses must pay within 30 days;
-Additional fees can be claimed for debt recovery costs;
-A verification period cannot exceed 30 days


Just to reiterate, the legislation only applies to commercial debts and cannot be used where the debtor is a consumer i.e. where the service or product is purchased for personal use.


The primary aim of this legislation is to encourage businesses to pay their suppliers on time i.e. to act as a deterrent from paying late.


But if you resort to using it, what does the legislation entitle you to?


For any payments that are late, you are entitled to:


1. compensation


this is a fixed amount depending on the amount of debt owed


Size of the unpaid Debt To be Paid to the creditor
Up to £999.99 £40.00
£1.000.00 to £9.999,99 £70.00
£10.000.00 or more £100.00


(The amount of debt can be inclusive of any VAT charged.)


2. interest


The interest rate you can charge on a late payment is equal to the Bank of England base rate + 8% and is expressed as a daily interest.


For example, the current Base Rate is 0.25% so a total of 8.25% can be charged.  On a debt of £1000, 8.25% is equal to annual interest of £82.50.  Divide this by the number of days in the year to get the daily interest.


£82.50 /365 = £0.23 per day interest.


3. recovery costs


If your costs in collecting the debt are reasonable, quantifiable and verifiable and are not met by the fixed compensation rates mentioned above, then you will be able to claim for these as well.  This is the advantage of using a third party such as a solicitor, debt collector or credit control company to deal with this as they can provide a verifiable fee for their services.




If you use our invoices, dont include any other reference to late payments or fees as, unless they are drafted by a solicitor they may cancel out your rights under the late payment legislation and end up totally unenforceable.  We have already included statements on the invoices which will enable you to take full advantage of the legislation.



The use of the late payment legislation is even more important now due to relatively recent changes in the Small Claims track that many people used to go down.  Claims of less than £10,000.00 are now automatically allocated to the Small Claims Court, which is fine except that any costs incurred are generally not recoverable.  Using the late payment legislation instead will allow most, if not all, of your costs to be recovered from your debtor (for successful claims).


Non-commercial debts


 Where the product or service is being bought/ sold by an individual for private use then the statotory rights under this legislation do not automatically apply.  It is therefore required to include payment terms and any penalties for late payment on the actual invoice in order to be able to claim such compensation.





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