Businesses can claim up to £100 on debt collection costs

As of 7th August this year, businesses owners and managers will be entitled to seek financial compensation for the inconvenience of chasing outstanding commercial debt. The new allowance is one of several benefits that will be introduced under the revised Late Payment of Commercial Debts (Interest) Act 1998.

Businesses will be entitled to claim compensation when a debt remains unpaid after the date specified on the contract, or in the absence of a contract, 30 days after the delivery of the goods or service.

The new initiative has been designed to complement businesses’ existing right to claim interest for the late payment of commercial debt. Businesses are encouraged to warn their purchasers at the outset that they will use the new legislation if payment is late.

The Better Payment Practice Group suggests businesses use the following wording in their credit management correspondence:

“We understand and will exercise our statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to our agreed credit terms.”

The revised legislation, also brings with it the following changes to the existing Late Payment of Commercial Debts (Interest) Act 1998:

Simplifying the calculation of the interest rate for late payment by fixing the rate for a six-month period – rather than fluctuating monthly as at present;

Allowing representative bodies to challenge in court grossly unfair contractual terms on behalf of small businesses; and

Extending the late payment legislation to include businesses of all sizes and the public sector – at present only small firms can claim interest on debt.

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