The Late Payment of Commercial Debts (Interest) Act 1998 gives suppliers rights in many commercial transactions where another business pays late. These rights can strengthen a recovery claim, but they should be applied accurately rather than added automatically.
Statutory interest
For a qualifying debt, statutory interest is generally calculated at 8 percentage points above the Bank of England base rate. The applicable base rate and calculation period must be checked for the relevant debt. Interest normally runs from the day after the payment became late until payment.
Fixed compensation
A supplier may also be entitled to a fixed sum for the cost of recovering a qualifying late payment. GOV.UK currently sets the bands at £40 for debts below £1,000, £70 for debts from £1,000 to below £10,000, and £100 for debts of £10,000 or more.
Reasonable recovery costs
If reasonable recovery costs exceed the fixed sum, the legislation may allow the supplier to claim the difference. Any additional amount should be evidenced and proportionate.
Check the contract first
A contract may contain its own interest or late-payment remedy. Where it provides a substantial contractual remedy, statutory interest may not apply in the same way. Check the signed terms, purchase order and any incorporated conditions before calculating a demand.
Present the calculation clearly
State the principal debt separately from interest, fixed compensation and any additional recovery costs. Identify the legal or contractual basis, period covered and calculation used. This makes the demand easier to verify and less vulnerable to an avoidable dispute.
Official sources
This article is general information, not legal advice or a calculation of entitlement in any particular case. Rates, legislation and official guidance should be checked when a claim is made.