UK Businesses should update their credit management documentation

From August 2002, the UK’s Late Payment of Commercial Debts (Interest) Act 1998 will be amended to incorporate the benefits of a new European legislation referred to as the EC Directive.

Under the amended Late Payment of Commercial Debts Act, UK businesses will be able to claim reasonable debt recovery costs and will benefit from the simplification of the calculation of statutory interest. Additionally, bodies representing small and medium-sized enterprises, such as the Federation of Small Businesses, will have the right to challenge grossly unfair contract terms used by purchasers, which may affect the ability to recover late payment interest.

In light of these new benefits, the Better Payment Practice Group is advising businesses to revise their credit management documentation to ensure they can avail of the new credit management tools.

According to Nick Goulding Chief Executive for the Forum of Private Businesses and member of the Better Payment Practice Group, the most important document to revise is the Terms of Trade, also known as Conditions of Sale or Terms and Conditions. This document is designed to protect the seller’s rights and stipulates, among other things, when the transaction should be paid. It also limits potential liabilities and provide some degree of security for the recovery of the debt, following the supply of goods or services.

Mr Goulding said: “As from August this year, all businesses will be entitled to claim reasonable debt recovery costs. However if businesses wish to use the new entitlement, and avoid misunderstandings, they should clearly state their intention to do so in their Terms of Trade.”

It is essential that both contracting parties (i.e. buyer and seller) agree the Terms of Trade between them before, or at the time that a contract is made. This will set the ground rules between the contracting parties.

Although it may involve an initial cost, the Better Payment Practice Group also encourages businesses to seek legal advice when drawing-up a Terms of Trade document.

In addition to the Terms of Trade document, businesses should also revise the wording on their invoices, credit collection letters, e-mails and other relevant documentation.

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