Late or non-payment of debts can cause cash-flow problems or even force a company out of business. Many businesses remain unaware of the regulations in place that allow for interest to be claimed on unpaid invoices.

The Late Payment of Commercial Debts (Interest) Act 1998 and Late Payment of the Commercial Debts Regulations 2002 enable businesses to claim interest on unpaid invoices, from other businesses, at the rate of 8% above base rate.

It follows therefore that in any contract or Terms of Business, you should specify that you will claim interest on unpaid invoices at the rate of at least 8% above base.

Note that if you make your own arrangements in relation to interest (i.e. in your Terms of Business) the late payment legislation will not apply and you will be bound by the rate set out in your terms/the contract.

To ease calculation of interest, the legislation has provided a fixed reference rate, linked to the Bank of England base rate, which applies for a six month period.  Accordingly, if an invoice becomes payable within a specified six month period then the interest rate will be calculated by reference to the fixed reference for that period plus 8%.

Compensation may also be claimed under the Act, in respect of each outstanding invoice and by reference to the amount outstanding under each invoice.  Compensation ranges from £40.00 to £100.00.  This means that you should be able to recover part, if not all, of any solicitors’ charges for sending the initial letter before action claiming the outstanding invoice plus interest and compensation.

For further information please contact Paul Marmor or Karen Dobson in Sherrards’ litigation/debt recovery department 01727 832830 or at www.sherrards.com