Protect your business from late
payment of commercial debts
For Small and Medium sized Enterprises (“SMEs”), the effect
of late payment of invoices can be substantial.
In order to limit the impact on your business, it is
particularly important that your terms and conditions
give the best protection from late payment of commercial
debts. Often, terms and conditions provide for a low rate of
interest without provision for compensation or the right to
recover reasonable legal costs.
It is important for SMEs to be able to claim interest,
compensation and reasonable legal costs, once an
invoice has become due. This will help to minimise costs
to the business and encourage payment on time; this, in turn,
will assist the cash flow of the business.
Where the terms and conditions of a business do not make
any provision for the recovery of interest, compensation
or reasonable legal costs, SMEs should be aware of the
provisions under the Late Payment of Commercial Debts
(Interest) Act 1998 (the “Act”). The Act makes provisions
specifically to try and protect SMEs from late payment.
The Act sets out specific rates of compensation, which vary
depending on the size of the debt, together with the rate of
interest which can be claimed. The interest rate is set at 8%
plus the Bank of England base rate applicable at the time the
invoice was rendered. Overall, the rate set by the Act will
often be higher than interest rates set out within the
standard terms and conditions. The Act also allows other
fixed sums to be claimed.
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