Late Payment of Invoices (1998)

The 1998 Act

Updated: Late Payment of Invoices (2002)

What is the Late Payment of Commercial Debts (Interest) Act?

The Act gives businesses the statutory right to claim interest when customers don’t pay their bills on time. The very existence of the Act should be seen as a means of encouraging businesses to pay suppliers within acceptable time limits. Prior to the Act, interest could only be claimed on a debt if it was stipulated in the contract or if the courts decided to award interest, following pursuit of a debt.

Why do we need the Act?

Everyone is in business to make a profit and when customers pay later than expected, a serious cash flow crisis can arise. What’s more, repeated late payment of debts can have drastic effects on a small business. It can reduce efficiency and profits, push up prices to cover interim finance costs and worse still, force a small company out of business because it cannot honour its own debts. The possibility that interest may be charged on outstanding debts is intended to act as a deterrent to late-paying companies.

How does the Act work?

The Act is being introduced in three phases. Phase one took effect from November 1 1998 and enabled small businesses to claim interest on the late payment of debts run up by large businesses and the public sector. The second phase, which was introduced on November 1 2000, now gives small businesses the statutory right to claim interest on debts owed by other small businesses. Phase three of the Act, which will be applied from November 1 2002, will award all businesses and the public sector the statutory right to claim interest on debts incurred by all businesses and the public sector.

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