The Final Stage of The Late Payment of Commercial Debts Act (1998)

Effective Date: 7 August 2002

1. Introduction

The late, and non, payment of commercial invoices is the single most destructive chain event for many SMEs. The answer to such a problem was not to litigate to deter, but to prevent the delay in payment from gathering pace from, say, from 45 days overdue to 120 days: thus becoming a ‘bad debt’ scenario rather than being ‘just overdue’. There also needed to be a way to focus the debtor, and to some extent the creditor, on the increasing cost of delaying payment to both them and the creditor.

With this in mind, the government brought in the Late Payment of Commercial Debts (Interest) Act 1998 to deal with commercial payment default: taken as a right within the UK business community. As with many government initiatives, getting the message out is arguably the easy part: getting those intended to benefit from the legislation to use it is, by far in this case, near impossible (think, stakeholder pension).

The whole issue of charging your customers over and above the invoice amount is akin to poking them in the eye every time they order something. But this is exactly what the government wants you to do.

The introduction of late payment interest is not meant to act as a deterrent alone, but as a justifiable way to maintain profitability when your cash flow is not earning bank interest or, more likely, reducing the overdraft facility. Also, to help foster a culture of prompt payment within the business community. The current status quo for paying invoices is about 45-days from invoice date: this means that for this initiative to have the desired impact, suppliers should insist that all debtors meet the generous 30-day period that they have built into their budget and cash flow.

Article Index:

1. Introduction – The Final Stage of The Late Payment of Commercial Debts Act (1998)
2. The Legislation of Late Payment of Commercial Debts Act (1998)
3. Terms of Sale and Late Payment Calculation
4. The Neccessity of Enforcing Interest Payments