Late Payment of Commercial Debts (Interest) Act 1998

31.1.48.Late Payment of Commercial Debts (Interest) Act 1998

The Late Payment of Commercial Debts (Interest) Act 1998 applies to contracts entered into after 1 November 1998 [Note 1] and gives businesses a statutory right to claim interest on a specified date if another business pays its bills late [Note 2]. This Act applies to commercial contracts for the supply of goods and services but it does not apply to consumer contracts [Note 3].

31.1.49 Debt recovery costs

The creditor may also claim for reasonable debt recovery costs, the amount of which will be determined according to the size of the outstanding debt [Note 4]
as follows-

  • Debts up to £999.99 - £40 compensation; 
  • Debts from £1,000 to £9999.99 - £70 compensation;
  • Debts from £10,000 - £100 compensation.

31.1.50 Pre insolvency interest

A claim for interest is provable in liquidation or bankruptcy. Statutory interest accruing prior to the date of insolvency will be treated in the same way as interest arising under an express contractual term [Note 5] and is therefore provable in liquidation or bankruptcy.

31.1.51 Date from which interest runs

Where a supplier has agreed a credit period or a period of grace with the purchaser, payment is late if it is made after the last day of that period [Note 6]. If no such period has been agreed then the Act sets a default period of 30 days which runs from the later of the following two actions:

  1. The delivery of the goods or the performance of the service by the supplier, or
  2. The day on which the purchaser has notice of the amount of the debt

[Note 7].

Interest runs as of right and there is no legal need to give notice of the intention to claim such interest for it to start accruing. However, in order to recover such interest, the supplier must inform the purchaser that he/she intends to claim it. Therefore in practice, the purchaser may not know that the supplier is going to use his/her right until informed. A supplier has six years in England, Wales and Northern Ireland in which to make his/her claim [Note 8].


31.1.52 The interest rate

Interest is calculated at 8% over the Bank of England base rate in force on the 30 June or 31 December immediately before the day on which the interest starts to run [Note 9].


31.1.53 Interest on book debts

In all cases where interest under the new provisions may be claimed from book debtors of the insolvent company, partnership or individual, this should be claimed on behalf of the estate in addition to the capital sum for the whole period during which such interest is due. Discretion may be used in enforcing such interest where it is clear that late payment of the debt by the book debtor has arisen as a consequence of the circumstances surrounding the insolvency (e.g. the insolvent trader could not be traced, the book debtor was uncertain as to whom to pay the sum outstanding to, etc). The actual claiming and calculation of the interest will be dealt with by the contractor as part of his/her debt collection duties on behalf of the official receiver. When calculating the interest payable the interest does not compound [Note 10].


[Back to Part 6 - Book debts subject to a fixed or floating charge]