A User's Guide to late payment legislation:
Contents
1. Purchasers who wish to avoid future claims for interest should pay their bills on time The six year period is derived from case law and the Limitation Act 1980 This creates a reasonable expectation that it would be possible to pursue and claim statutory interest for late payment up to 6 years 5 years in Scotland retrospectively or back to the time when the appropriate legislation came into force whichever is the shorter of the two periods businesses not based in England or Wales should read Jurisdiction in Section 1 Guidance The issue of limitation not being able to claim retrospectively will only arise in 2004 in England and Wales because claims for late payment interest under the late payment legislation cannot pre date the coming into force of the relevant part of the legislation see the table below Can charge retrospectively on my existing debtors list Yes It is possible to claim statutory interest for late payment up to 6 years in the past 5 years in Scotland or as far back as the appropriate legislation see table below is available whichever is the shorter period commercial contract can create a claim for interest under the late payment legislation The earliest date from which a Who can claim back for that From 1 November 1998 Small businesses can claim statutory interest for late payment from large businesses and most of the public sector From 1 November 2000 S2. 2 Where it is necessary to distinguish between small and medium sized enterprises the small enterprise is defined as an enterprise which e has fewer than 50 employees and e has either e an annual turnover not exceeding EUR 7 million or e an annual balance sheet total not exceeding EUR 5 million e conforms to the criterion of independence as defined in paragraph 3 3 Independent enterprises are those which are not owned as to 25 or more of the capital or the voting rights by one enterprise or jointly by several enterprises falling outside the definitions of an SME or a small enterprise whichever may apply This threshold may be exceeded in the following two cases if the enterprise is held by public investment corporations venture capital companies or institutional investors provided no control is exercised either individually or jointly if the capital is spread in such a way that it is not possible to determine by whom it is held and if the enterprise declares that it can legitimately presume that it is not owned as to 25 or more by one enterprise or jointly by several enterprises falling outside the definitions of an SME or a small enterprise whichever may apply 4 In calculating the thresholds referred to in paragraphs 1 and 2 it is therefore necessary to cumulate the relevant figures for the beneficiary enterprise and for all the enterprises that it directly or indirectly controls through posse
3. The table below shows how much compensation you are entitled to Size of the unpaid debt To be paid to the creditor Up to 999 99 40 1 000 to 9 999 99 70 10 000 or more 100 Section 4 How to collect How do collect the interest for late payment and or the debt recovery compensation The interest and compensation are payable by law It is up to the supplier to decide whether or not to enforce this right It is good business practice to agree payment terms up front preferably in writing You could also agree interest and compensation provision or alternatively indicate that you will rely on the statutory rights see the penultimate question of Part 1 Section 2 If the purchaser pays late then the supplier should make a written demand for the interest and or compensation for debt recovery costs as described earlier in Section 3 Guidance This entitlement to compensation for debt recovery costs does not affect your other rights and you may still go to court to recover specific fees and charges paid to specialist firms or advisers if you feel that is necessary If you do go to court the statutory compensation can be recovered along with late payment interest Can my right to interest or compensation for debt recovery costs be sold or transferred to another party such as factors or collection agencies Yes If any part of the debt i e the interest or the prin
4. help promote a culture of prompt payment There has been a statutory right to interest for late payment for small firms owed money by large firms or the public sector since 1 November 1998 when the Late Payment of Commercial Debts Interest Act 1998 came into force The Act was to have been introduced in 3 distinct phases and until 7 August 2002 phase 2 is in force This allows small businesses to charge each other statutory interest as well as large businesses and the public sector for the late payment of commercial debt Amended late payment legislation will come into force on 7 August 2002 This legislation will fulfil the UK s obligations under the European Directive 2000 35 EC on combating late payment in commercial transactions and has been prepared taking into account responses to the consultation that was held in Spring 2001 The results of this consultation together with work done by the Small Business Service and other Government Departments have led to the development and extension of the United Kingdom s existing late payment legislation What is meant by late payment legislation The phrase late payment legislation refers to the amended Late Payment of Commercial Debts Interest Act 1998 and the Late Payment of Commercial Debts Regulations 2002 Changes to the late payment legislation See page e An extension of the scope 6 of the late payment legislation e Creditors will be entitled 1
5. late payment legislation see Section 2 What does the late payment legislation provide The supplier has a legal right to the interest and compensation for debt recovery costs and if necessary to seek enforcement through the courts for non payment To avoid litigation if any interest and or compensation for debt recovery costs are legally due and have been claimed they should be paid If there is a genuine dispute or the charge has been made incorrectly then the claim should be queried at once How can ensure that don t receive a claim for interest and or compensation for debt recovery costs e Purchasers must not enter into a contract that realistically they do not think they will be able to fulfil A purchaser s reputation and credit rating will be damaged notwithstanding the increased risk of having to pay significantly more than originally envisaged as interest accrues and compensation is claimed e Purchasers should ensure that agreed payment terms are complied with e Purchasers should reconcile invoices and statements of account promptly e Purchasers should raise any genuine complaints or disputes as soon as they arise and at the very latest upon receipt of an invoice e f a dispute or complaint arises purchasers should obtain where possible written confirmation from the supplier that a query exists As a supplier how can protect my right to claim interest and compensation for debt re
6. statutory interest that is not a substantial remedy for late payment of the debt unless the overall remedy for late payment of the debt is a substantial remedy How will the courts know whether a remedy is substantial or not In determining whether a remedy is substantial or not the courts will consider all the circumstances including the rate of interest that applies to late payments and the length of credit periods Purchasers should not negotiate longer credit periods to avoid the possibility of late payment Where a credit period is considered to be excessive the courts may strike it down and replace it with the 30 days default period provided by the late payment legislation It will be for the supplier to show that a remedy is not substantial although the purchaser may have to provide evidence that it is fair and reasonable in the circumstances The court will then have to judge whether in all the circumstances including what is usual for that sector of business the remedy meets the criteria of a substantial remedy set out above The court will take into account such factors as whether there was equality of bargaining position between the parties and whether standard terms have been imposed Examples of contract terms which a court might declare void to the extent that they relate to late payment because they result in there being no substantial remedy for late payment might include e a credit period t
7. the best option for example if your debtor is insolvent the chances of recovering the debt are minimal and you will have incurred court costs as well The court procedures are designed to be quick and easy to operate County Court offices can provide information about court procedures copies of the forms and help with filling them in The addresses and telephone numbers of County Courts are listed in the telephone directory under Courts Section 5 Receiving and avoiding claims for interest Recently the Court Service has launched a facility called Money Claim Online where it is possible to claim debts of less than 100 000 electronically using the internet more information can be found at www courtservice gov uk mcol The supplier should as a matter of best practice give notice to the purchaser of an intention to issue proceedings to recover the interest and or compensation for late payment If legal proceedings are taken the purchaser may set out the grounds of his dispute to contest the claim It will then be for the court to decide the matter Going to court or using Money Claim Online should be a last resort Be sure that you have tried all other solutions including alternative dispute resolution if appropriate the Court Service offers guidance on this The court will expect the parties to act reasonably in exchanging information and documents relevant to the claim prior to litigation being l
8. the purchaser should ensure that there is an agreed credit period otherwise the default period of 30 days might apply How do I make a claim for interest and or reasonable debt recovery costs When the payment Is late a supplier should inform the purchaser that he or she is claiming interest on the late payment under the late payment legislation It may be helpful to indicate the daily rate of interest that will be claimed although it is not necessary to do so The amount of compensation for debt recovery costs available is determined by a table which the supplier can refer to For the purpose of claiming interest and or compensation for debt recovery costs notification can be oral but it is better to put it in writing as this makes it easier to prove that notice has been given It is necessary to provide all the information that should be carried on a standard invoice e how much is owed it may be helpful to provide the total amount of interest owed at the date of the invoice for interest and if the principal has not been paid the rate at which the interest will continue to accrue e the amount owed and what it is owed for stating which principal debt it relates to quoting the original number of the invoice that requested payment of the principal debt e to whom payment should be made e by what date e to what address and e by what method the payment should be made e g cheque electronic transfer et
9. the table below to claim interest retrospectively Section 3 Do have to claim immediately provides further guidance about claiming retrospectively Guidance on how to use the Act when making a claim for interest that is based upon a sale made before 7 August 2002 is set out in The Late Payment of Commercial Debts Interest Act 1998 A User s Guide URN 00 1308 which will be sent to you free of charge if you ring EC Logistics on 0870 150 2500 and ask for a copy You can also download it from the website www payontime co uk The table below provides a brief summary of how the legislation worked prior to 7 August 2002 The earliest date from which a commercial Who can use the legislation contract can create a claim for interest under the late payment legislation From 1 November 1998 Small businesses can claim statutory interest for late payment from large businesses and most of the public sector From 1 November 2000 In addition to the above small businesses can charge other small businesses statutory interest for late payment Definition a small business for these purposes has 50 or fewer employees Guidance If you are seeking advice on late payment that has arisen from sales agreed before 7 August 2002 you should consult the user s guide referred to above From 7 August 2002 All businesses irrespective of size and public sector bodies can claim statutory interest for the late payme
10. 1 to reasonable debt recovery costs e The right for an appropriate 14 representative body to challenge grossly unfair contractual terms on behalf of SMEs e The simplification of the 16 calculation of the interest rate for late payment The statutory right to claim interest and the other entitlements being made available from 7 August 2002 are not compulsory and it is for the supplier to decide whether or not to use rights made available Part of maintaining any successful business is good cashflow management and the late payment legislation can help you with your credit management Legal Warning The User s Guide has been prepared to provide general guidance only This guide does not constitute legal advice and reliance ought not to be placed on it No liability can be accepted by the authors or publishers for its contents The interpretation of the law on late payment is ultimately a matter for the courts and users should take their own advice where appropriate Part of maintaining any successful business is good cashflow management and the late payment legislation can help you with your credit management Section 1 Understanding the legislation Your rights and how the changes to the late payment legislation will affect them Before 7 August 2002 ALL small businesses can use the rights given to them by the Late Payment of Commercial Debts Interest Act 1998 as per
11. A User s Guide to late payment legislation The Late Payment of Commercial Debts Interest Act 1998 as amended and supplemented by the Late Payment of Commercial Debts Regulations 2002 Business LINK Business LINK Business Link is a service dedicated to making the UK the best place in the world to start and grow a business Through our extensive network of providers we offer first class business support information and advice to people wishing to start up develop or improve their business Index Introduction Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 e Your rights e Changes to the late payment legislation e Legal Warning Understanding the legislation e Your rights and how the changes to the late payment legislation will affect them e Definitions in the new late payment legislation e Jurisdiction e How you do business What does the late payment legislation provide e Part 1 Late payment interest and reasonable debt recovery costs e Part 2 Grossly unfair terms and conditions How to claim e Part 1 How to calculate late payment interest e Part 2 Reasonable compensation for debt recovery costs How to collect Receiving and avoiding claims for interest Definition of small and medium sized enterprises Introduction Your rights The United Kingdom was one of the first countries in the European Union to implement late payment legislation to
12. aunched and generally in trying to avoid the necessity for the start of proceedings How will a County Court Judgment affect the purchaser If the court makes an award against the purchaser the purchaser may find that their credit rating is detrimentally affected if they do not make the payment within a month because this non payment will be registered at Registry Trust Ltd the register of County Court Judgements and this information will be made available to credit references agencies and any other party searching the registry This will make obtaining credit in the future much more difficult as the purchaser will be perceived as a poor payer Are there any valid grounds for disputing interest and or compensation for debt recovery costs claims The purchaser may ask the court to be excused from paying part or all of the interest or debt recovery costs either as a defence to a claim made by the supplier or by applying to the court themselves This might happen for example if the supplier did not give the purchaser enough information about the amount owed where payment should be sent or by what method it should be made cash cheque etc or was otherwise unreasonable in its conduct The court has the power to remit interest that is due either partially or wholly What do do if receive a claim for interest If the payment was made late then interest and compensation for late payment are due and payable under the
13. c How should inform purchasers that they will be charged interest and or reasonable debt recovery costs if they pay late Rather than using it as a last resort when faced with an overdue invoice the late payment legislation is designed to bea deterrent against late payment and to be used as part of standard business practices and credit management techniques In much the same way as a supplier reminds purchasers that payment is due within a specified time limit the supplier should also remind them that interest and compensation for debt recovery costs will be charged on overdue Invoices using the entitlements provided by the late payment legislation In addition to informing purchasers verbally of their right to charge interest and or claim compensation for debt recovery costs as part of standard payment terms suppliers should state clearly on all written communications credit application forms order confirmations invoices and all contracts We understand and will exercise our statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to agreed credit terms Do have to charge interest and or debt recovery costs to all late payers No It is not compulsory to use the late payment legislation A supplier is free to decide whether or not to make a claim for interest or compensation for debt recovery costs Part 2 Void grossly
14. cipal or both is assigned to a third party the original supplier should inform the purchaser in writing saying to whom the debt has been assigned The third party regardless of its size can then pursue the debtor through the courts for the interest etc Sometimes a supplier sells a debt without notifying the debtor When this happens the transfer is effective as far as the original supplier and the third party are concerned However as far as the debtor is concerned the debt is still owed to the original supplier and it is only the original supplier who can pursue the debtor through the courts The person entitled to receive the money can employ an agent to collect it for them For example a supplier might employ a debt collector to act as its agent in seeking to collect from the debtor without actually transferring the debt Similarly a factor might expect a supplier to act as its agent by continuing to press debtors for payment of debts they have sold to him Someone who is acting as an agent In this way can calculate and claim interest and invoice for it Some agencies offer a legal service enabling them to issue court proceedings The supplier can transfer the whole debt that is both the principal sum and the interest or the principal sum alone or the interest alone Where only part of the debt has been transferred the supplier can act as an agent for the third party in respect of the transferred part and th
15. covery costs e Suppliers should evaluate in advance the purchaser s financial status to minimise the risk of providing goods or services to a company that cannot or will not pay e Suppliers should send accurate invoices and statements of account promptly e Suppliers should ensure that genuine customer complaints or disputes are resolved as early as possible and should act reasonably at all times e Suppliers should have an effective collection system in place to ensure compliance with agreed terms Can purchasers and suppliers work together to promote a better payment culture Good communication between supplier and purchaser can help reduce the incidence of late payment Purchasers and suppliers should ensure that payment terms are agreed at the start of the trading relationship and that they are clear to all parties Section 6 Definition of small and medium sized enterprises This extract is taken from the Commission Recommendation 96 280 EC of 3 April 1996 concerning the definition of small and medium sized enterprises OJ L 107 30 4 1996 p 4 1 Small and medium sized enterprises hereinafter referred to as SMEs are defined as enterprises which e have fewer than 250 employees and e have either e an annual turnover not exceeding EUR 40 million or e an annual balance sheet total not exceeding EUR 27 million e conform to the criterion of independence as defined in paragraph 3
16. d find out more information about the Better Payment Practice Group by visiting www payontime co uk Business Link provides advice and support to small businesses For more information about the range of services available please call 0845 600 9 006 Or visit www businesslink org The Better Payment Practice Group is a public private partnership whose objectives are to raise awareness levels of the late payment legislation and promote good credit management practice You can order further free copies of this guide and other Business Link publications from DTI Publications Orderline ADMAIL 528 LONDON SW1W 8YT Tel 0870 1502 500 Fax 108701150272333 Telephone for the hard of hearing 0870 1502 100 Email sbspubs eclogistics co uk Business Link is bought to you by the Small Business Service SBS the agency within Government championing small businesses
17. e third party for the supplier for the part that has not been transferred Whatever the arrangements between the supplier and third party the purchaser will never be required to pay interest twice on the same debt What happens if a purchaser does not agree with the interest or compensation for debt recovery costs that is charged to them A purchaser may not agree with an interest charge for example if the goods delivered were faulty and had to be repaired or they were delivered late If this happens the purchaser may negotiate with the supplier to reduce or amend the interest charge Sometimes the purchaser may be unable to reach any agreement with the supplier If this happens and once all collection methods and negotiations have been exhausted if the supplier considers that his her claim for interest and or compensation for debt recovery costs is a proper one he she can go to court or consider the following actions e to withhold the supply of further goods or services until interest is paid e to refuse to trade on credit terms with the purchaser in the future e to negotiate with the purchaser to ensure that future invoices are paid on time How do use the courts to collect payment If the purchaser does not pay the interest and or compensation for debt recovery costs the supplier can pursue the claim through the courts Taking someone to court can be an effective method of debt recovery but not always
18. ed to be exhaustive and might not necessarily apply in every case How does the late payment legislation affect existing custom and practice The late payment legislation does not replace existing custom and practice If the parties have undertaken business on the basis of usual industry practice for example payment at the end of the month following the date of the invoice then this practice will probably still apply However if any remedy for late payment is not substantial the terms of the late payment legislation will apply it must be stressed that the courts will look at the issue of a substantial remedy for late payment on a case by case basis Section 2 What does the late payment legislation provide From 7 August 2002 the late payment legislation will provide all businesses and the public sector with 4 entitlements i the right to claim interest for late payment ii the right to claim reasonable debt recovery costs unless the supplier has acted unreasonably iii the right to challenge contractual terms that do not provide a substantial remedy against late payment and iv the right for representative bodies to challenge contractual terms that are grossly unfair on behalf of SMEs The first part of this section will address the right to interest and reasonable compensation for debt recovery costs The second part will deal with contract terms Don t risk antagonising my customers i
19. f use the legislation Using the legislation is your statutory right and is not designed to jeopardise existing customer relationships Rather than seeking to encourage claims for interest and or debt recovery compensation the legislation s primary aim is to deter companies from paying their bills late By treating the legislation as an integral part of your payment terms customers will become educated to the fact that this is part of the way that you like to do business Part 1 Late payment interest and reasonable debt recovery costs When can claim either or both of them Claim s can be made once a payment is deemed late Remember that if your contract makes provision for late payment interest the statutory right to interest and the right to reasonable debt recovery costs will not apply You may wish to contract for reasonable recovery costs to cover the event of late payment or if you are litigating you may be able to recover from the court some of the costs and disbursements incurred or some of your reasonably foreseeable losses flowing from the late payment When is a payment late Where there is an agreed credit period and the supplier has agreed either in writing or orally a credit period with the purchaser the payment Is late if it is made after the last day of the credit period If no credit period has been agreed then the Act sets a default period of 30 days after which interest can run This defau
20. hat is significantly different from custom and practice in that industry e a credit period that is significantly different from other supply contracts operated by the purchaser e an interest rate on late payment significantly lower than the statutory rate that fails to act as a deterrent to the purchaser paying late because it is lower than the purchaser s theoretical or actual cost of agreed borrowing e an Interest rate on late payment significantly lower than the statutory rate that fails to recompense the supplier for being kept from their money because it is below the supplier s theoretical or actual cost of agreed borrowing an interest rate on late payment significantly lower than the rate used in other supply contracts operated by the purchaser or than is normal in that sector of the economy a contract term that has the effect of reducing the amount of interest that can be claimed such that the compensation for late payment is insufficient to recompense the supplier or to act as a deterrent to late payment e excessive information requirements that must be fulfilled under the contract before any credit period might start Whether the purchaser had given any benefit in return for the term in question would be relevant However it must be stressed that the courts will look at the issue of a substantial remedy for late payment on a case by case basis Guidance The above list is not intend
21. he Bank of England base rate on the 30 June or 31 December can be found by looking in the financial pages of the national press of the appropriate date libraries will be able to help or by visiting the Bank of England website at www bankofengland co uk How do I calculate the interest charge The interest owed on a late payment is simple not compound interest It is calculated like this Debt x interest rate x the number of days late 365 Do calculate inclusive or exclusive of VAT You charge interest on the gross amount of the debt including any element of VAT but you do not pay VAT on the interest Example If the base rate is 4 for the six month period when the debt became late then the statutory interest rate is 12 4 base rate plus 8 Debt is 851 06 plus 148 94 VAT total 1 000 If this debt is 30 days late then the interest owed is 1 000 x 12 120 the annual rate 120 365 32 9p the daily rate 32 9 pence x 30 days 9 86 the interest owed to date When does the interest stop running Interest stops running on a debt once the principal has been paid i e once payment is received but not yet cleared if relevant If the purchaser owes the principal and interest unless payment is accepted on other terms any part payment of the debt will go to reduce the amount of the interest first Part 2 Compensation arising from late payment How much compensation am allowed
22. lt period does not constitute a statutory credit period Where no credit period is agreed ina contract the principal debt will still become due from the moment the goods are delivered or the service performed The 30 day default period starts running from the later of the actions e the delivery of the goods or the performance of the service by the supplier or e the day on which the purchaser has notice of the amount of the debt A payment is late once the agreed credit period or the default period has expired What happens if the contract requires advance payment s There are several ways in which a contract can require payment s to be made before the goods are delivered or the service is performed The Act does not give a right to interest unless at least some of the goods have been delivered or part of the service performed unless contractually agreed If the parties wish to agree otherwise they will need to make provision in the contract for a substantial remedy instead of statutory Interest Some contracts stipulate that the whole contract price should be paid before the goods are delivered or the service is performed If payment has not been made before the goods are delivered or the service is performed then statutory interest starts to run from the day after the day on which all the goods are delivered or the whole service is performed Other contracts stipulate that payment should be made by instalmen
23. mall businesses can also claim statutory interest for late payment from other small businesses From 7 August 2002 Anyone involved in a commercial contract can claim statutory interest or claim compensation arising from late payment If the purchaser owes the principal and interest unless payment Is accepted on other terms any part payment of the debt will go to reduce the amount of the interest first Part 1 How to calculate late payment interest What rate of interest can be charged At the start of a six month period the official dealing rate of the Bank of England the base rate will be made a fixed reference rate for the subsequent six months The table below shows how this works The six month period The Bank of England base 1 January to rate on 31 December will 30 June be the reference rate for The Bank of England base 1 July to rate on 30 June will be 31 December the reference rate for To determine what interest rate you should use when calculating interest on a late payment you need to add 8 to the reference rate that covers the six month period in which your debt became late How do find the correct base rate to use The correct interest rate to be used can be found by visiting www payontime co uk The Better Payment Practice Group will also issue a press release with the base rate to be used for the forthcoming 6 month period T
24. nt of commercial debts In addition to this the entitlements identified in the introduction will be available This user s guide explains how the late payment legislation in England and Wales will work from 7 August 2002 Definitions in the new late payment legislation What is a public sector body A public sector body is any Government Department Government Agency Non Departmental Public Body and local or public authority What is a representative body A representative body is an organisation established to represent the collective interests of small and medium sized enterprises in general or in a particular sector or geographical area How is a SME small and medium sized enterprise defined An SME has fewer than 250 employees and either has a turnover of less than EUR 40 million or an annual balance sheet total not exceeding EUR 27 million and is independent Section 6 provides the full definition of an SME for the purposes of this legislation Guidance to convert your turnover or annual balance sheet figures into a EURO equivalent you need to use the reference rate that is published annually by the European Commission and which can be found in the Official Journal of the European Communities Jurisdiction The explanation of the late payment legislation set out in this document refers exclusively to England and Wales In Northern Ireland and Scotland the late payment legislati
25. on is very similar however due to differences in legal proceedings and the impact of devolution it is essential that businesses and the public sector in either Northern Ireland or Scotland seek appropriate guidance there We will seek to work closely with the devolved Governments to ensure that the approach to the interest rate and other entitlements is co ordinated and consistent Appropriate authorities in Northern Ireland or Scotland can be contacted at Northern Ireland The Registrar of Companies 64 Chichester Street Belfast BT1 4JX Scotland Business Environment and Consumer Affairs Branch Enterprise and Industry Division Scottish Executive Enterprise and Lifelong Learning Department 4th Floor Meridian Court 5 Cadogan Street GLASGOW G2 6AT All the rights set out in this document should be available throughout the European Union from 7 August 2002 However there may be differences in how these rights are provided For example with regard to the right to be able to claim interest for late payment countries that are within the Euro zone will use the European Central Bank base rate and they will probably add to this 7 and not the 8 uplift that the legislation here provides Guidance Businesses involved in commercial contracts with businesses and or a public sector body not domiciled in England Wales Northern Ireland or Scotland should make sure that they know what their rights are under the la
26. pecific funding available to support challenges in court against grossly unfair contractual terms Any representative bodies going to court are subject to normal costs rules and litigation liabilities Can an independent representative body challenge void grossly unfair commercial contract terms and conditions without having been requested to by at least 1 SME Yes As long as the representative body has a demonstrable relevant link with the SMEs and has been set up specifically to act in the interests of SMEs as a whole or for a particular sector or geographical area Section 3 How to claim This section will be divided into two parts Part 1 explains how to calculate the amount of interest that you are entitled to and Part 2 advises how much compensation you are entitled to for reasonable debt recovery costs First however Do have to claim immediately There is no doubt that the older the debt the less likely it will be paid however a claim for interest against a late payment does not need to be made straightaway A supplier has six years in England Wales and Northern Ireland and five years in Scotland in which to make the claim businesses not based in England or Wales should read Jurisdiction in Section 1 Receivers or liquidators of a business may pursue its purchasers for interest on late payment going back over this period Businesses may also claim interest after they have stopped supplying a purchaser
27. ssion of 25 or more of the capital or of the voting rights 5 Where it is necessary to distinguish micro enterprises from other SMEs these are defined as enterprises having fewer than 10 employees 6 Where at the final balance sheet date an enterprise exceeds or falls below the employee thresholds or financial ceilings this is to result in its acquiring or losing the status of SME medium sized enterprise small enterprise or micro enterprise only if the phenomenon is repeated over two consecutive financial years 7 The number of persons employed corresponds to the number of annual working units AWU that is to say the number of full time workers employed during one year with part time and seasonal workers being fractions of AWU The reference year to be considered is that of the last approved accounting period 8 The turnover and balance sheet total thresholds are those of the last approved 12 month accounting period In the case of newly established enterprises whose accounts have not yet been approved the thresholds to apply shall be derived from a reliable estimate made in the course of the financial year In the case of newly established enterprises whose accounts have not yet been approved the thresholds to apply shall be derived from a reliable estimate made in the course of the financial year Additional copies and further information You can download this publication an
28. te payment legislation of the jurisdiction to which the contract would be subject if a dispute were to arise Any commercial contract made under the law of another member of the European Union will have access to entitlements resulting from late payment legislation which are similar to those identified in this document How you do business Is the legislation the only way I can remedy late payment No A supplier and purchaser can make their own arrangements for a remedy to late payment This is known as contractual interest If they do make their own arrangements for contractual interest the late payment legislation will not apply However if they do not make arrangements the remedies for late payment provided by the late payment legislation will apply Purchasers should not negotiate longer credit periods to avoid the possibility of late payment To prevent purchasers abusing the right to agree their own arrangements with the supplier any such contractual remedy for late payment must be substantial otherwise it will be void and the debtor will be unable to rely on it It will be struck down by the courts and the terms of the late payment legislation will apply to the contract Any contract terms are void if they a confer a contractual right to interest that is not a substantial remedy for late payment of the debt or b vary the right to statutory interest so as to provide for a right to
29. ts in relation to a delivery of any part of the goods or performance of any part of the service Where payment of such an instalment is made late then statutory interest runs on the instalment from the day after the day on which the part of the goods are delivered or the part of the service is performed Finally where an advance payment forms part of the contract price but is not related to the delivery of some of the goods or performance of part of the service then statutory interest runs from the day after the day on which all the goods are delivered or the whole service Is performed What happens if there is no agreed credit period but the purchaser usually pays at the end of the month following the month in which the invoice is received Some purchasers and suppliers have a long standing relationship in which this kind of payment arrangement has become standard practice In these cases the credit period is considered to end on the last day of the month following the month in which the Invoice is received Interest starts to run on the next day the late payment legislation is designed as a deterrent against late payment to be used as part of standard business practices and credit management techniques Where either i the purchaser is dealing with a new supplier or ii there is any other reason to doubt whether this kind of arrangement can be regarded as established practice between the supplier and purchaser
30. unfair contractual terms What are void grossly unfair contractual terms Void grossly unfair contractual terms undermine the purpose of the late payment legislation For example they might seek to deny the supplier their right to reasonable compensation for debt recovery costs and or remove or minimise the supplier s right to statutory interest for late payment For example the customer might try to impose unilaterally a reduction in the rate of interest to be charged for late payment and or increase the length of the credit period Guidance See How you do business in Section 1 which will also help What can you do Any business or the public sector is entitled to go to court and challenge such terms and conditions See How you do business in Section 1 Representative bodies officially recognised as or having a legitimate interest in representing SMEs may go to court on behalf of the SME s and challenge as grossly unfair contractual terms which purchasers wish to rely upon If the party that makes the challenge is successful the Court will strike down as void the offending term s and the provisions of the late payment legislation will apply instead Representation in court Small and medium sized enterprises SMEs can ask a representative body to go to court on their behalf Such a body might represent SMEs as a whole or cover a particular sector or geographical area Funding There is no s
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