Legal Update - Commercial Debt

Businesses have a statutory right under the Late Payment of Commercial Debts (Interest) Act 1998 (“the Act”) to charge interest (and debt recovery costs) on outstanding debts in circumstances where the contract does not give an express right to charge interest.  Any qualifying debt created by the contract carries simple interest.

What contracts does the Act apply to?

• A contract for the supply of goods or services where both the purchaser and the suppliers are acting in the course of a business.

What are qualifying Debts?

• A debt created pursuant to a contract to which the Act applies (see above), imposing an obligation to pay the whole or any part of the contract price.
• The current rates apply to debts arising from contracts made after 7 August 2002 and what is applicable to any contracts arising before that date will depend on the size of the business.

Period for which statutory interest runs

In most cases, interest starts running 30 days after whichever is the later of :-

1. the day on which the obligation to the purchaser is performed (usually when the goods or services are delivered); or
2. the day on which the purchaser has notice of the amount of the debt.

Rate of statutory interest

• As determined by the Secretary of State and currently 8% above the Bank of England base rate.
• However in some circumstances (for example arising from the conduct of the supplier) statutory interest may be ordered by the Court to apply at a reduced rate.

Additional sums recoverable

Once statutory interest begins as a result of an unpaid debt, the supplier is entitled to a fixed sum (in addition to the statutory interest on the debt):-

a)      for a debt less than £1,000, the sum of £40;

b)      for a debt of £1,000 or more, but less than £10,000, the sum of £70;

c)      for a debt of £10,000 or more, the sum of £100.

For any further advice please on debt recovery contact our Poole office on 01202 725400 (Darrell Stuart-Smith and Amy Kerr) or our Dorchester office on 01305 251007 (Caroline Carretta and Louise Rowsell) or our Parkstone Office on 01202 715815 (Tracey Costello).