The Federation of Small Businesses has recently published its 'Time is Money' paper making a case for late payment reform. The paper highlights the effects on small business of what it describes as a "systemic poor payment culture." It claims that late payments contribute to 50,000 otherwise avoidable business closures each year.

The UK Government is itself conducting its "Prompt Payment and Cashflow Reviews" which it describes as a scrutiny of current payment practices, measures and progress in combatting late payment, to help ensure that the right arrangements are in place to support small businesses. The Federation of Small Businesses make 16 recommendations for the UK Government which are considerably more extensive than what is currently in place. Amongst these recommendations are preventing corporates with poor payment practices from receiving taxpayer funds or grants and claiming any non-structural Corporation Tax reliefs.

Currently, in terms of business-to-business transactions, businesses do have a statutory right to claim interest on late payments. This is set out in The Late Payment of Commercial Debts (Interest) Act 1998 ('the 1998 Act'). Interest begins to run on the earlier of an agreed payment day (in terms of any contract) or on the thirtieth day after an invoice is issued. The rate of statutory interest presently prescribed in the Act is 8% plus the Bank of England base rate. Statutory interest cannot be claimed if the contract stipulates an interest provision.

The legislation also aims to discourage late payment by allowing creditors to claim fixed compensatory sums on overdue invoices. The compensation payable ranges from £40 per outstanding invoice under £1,000 up to £100 per outstanding invoice over £10,000. There are also further options for recovering costs associated with late payments if the compensatory sum does not meet this.

It is important to ensure that the process for recovering overdue payments is carried out in a correct and timely manner both in terms of the protections afforded by the 1998 Act or in accordance with the payment terms of the contract. Efficiency and accuracy in dealing with late payment assists in recovery of overdue sums and ensures that matters can be escalated further through the appropriate legal means, if required.

The UK Government is yet to complete its Prompt Payment and Cashflow Reviews. It remains to be seen to what extent it implements the recommendations of The Federation of Small Businesses. In the meantime, creditors ought to be aware of the existing statutory protections available to address late payment. As ever, should you experience issues with late payments, our litigation and debt recovery team can assist and advise you in terms of reviewing existing contracts and advising on the application of statutory protections.


Naomi Cornish

Senior Solicitor