Debtors rules

The present regime relating to commercial debts - the Late Payment of Commercial Debt (Interest) Act - has been with us for 12 years now. There has, interestingly, (excuse the pun) been little case law relating to it. As a reminder, the legislation allows for interest to be charged on debts that are

The present regime relating to commercial debts - the Late Payment of Commercial Debt (Interest) Act - has been with us for 12 years now. There has, interestingly, (excuse the pun) been little case law relating to it.

As a reminder, the legislation allows for interest to be charged on debts that are overdue at a statutory rate set by the Treasury, presently 8% over base rate, from the day after the agreed date for payment or, if none has been agreed, after 30 days from the date of supply.

It's also possible for the supplier to charge the debtor a compensation amount of between £40 and £100 based on the size of the debt. Further, the law allows for the parties to agreed a contractual rate, instead of the statutory rate, as long the as the remedy is "substantial" and either compensates the supplier or acts as a deterrent to late payment.

The recent High Court case of Yuanda (UK) v WW Gear Construction Limited concerned parties who had agreed a rate of 0.5% over base rate rather than the statutory 8% over base rate. The court viewed the deal badly and the arrangement was struck out because it had no deterrent element and offered no compensation to the supplier.

The bottom line? Stick to the statutory rate or one close to it. Anything other may not be enforced.

This was last published in December 2010

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