Even without supply contracts that say so, all sizes of company can now require their customers to pay interest at 8% over base on unpaid bills plus a recovery fee.
New Law: Late Payment of Commercial Debts Regulations 2002 and Late Payment of Commercial Debts (Interest) Act 1998 (Commencement No 5) Order 2002
Over the last 4 years, legislation has been slowly introduced entitling those owed money to charge statutory interest on overdue invoices even if they do not have written conditions of sale giving them a right to do so. Initially the legislation only applied where small businesses were seeking to recover payment of sums outstanding. However, since 7 August 2002 the entitlement to statutory interest has applied across the board, regardless of the sizes of the supplying or (non) paying parties.
There is also a new entitlement on the part of the supplying party to recover “debt recovery costs”. Court proceedings do not have to be instituted to qualify for these and the amounts involved are intended to cover the administrative time and expense involved in chasing payment of outstanding bills. If the bill in question is below £1,000 the amount to be paid to the creditor by the delinquent debtor is £40, £70 is exigible where the debt is between £1,000 and under £10,000 and with debts of £10,000 or more the sum is £100. The interest rate which unpaid suppliers are theoretically entitled to charge is no less than 8% above Bank of England base rate. This applies in the absence of any written supply contract terms which specify a lower rate. However, large customers who seek to undermine this legislation by imposing written terms specifying only for instance 1% above base rate should watch out. The new regulations allow “appropriate organisations” representing small to medium sized enterprises to challenge terms like these on the basis that these are grossly unfair and undermine the intent of the legislation.
Why this matters:
In practice, suppliers are only going to exercise their statutory right to demand interest and, now, a debt recovery payment, if they are prepared to live with the damage to their relationship with the customer that this might entail. However, having the right and exercising it are two different things and suppliers may prefer to at least flag up the existence of the right in their standard terms and conditions. Even though this is not necessary under the legislation for this right to arise, it may be less irksome for the customer to receive a request for such a payment if a suitable warning has already been contained in the supply contract.