Late Payment Interest/Compensation Information and Guide
11 June 2014

The Late Payment of Commercial Debts (Interest) Act 1998 was amended and had the scope extended by the Late Payment of Commercial Debts Regulations 2013 which came into force on 16 March 2014. The regulations added an implied term into qualifying contracts, giving a statutory right to claim interest and compensation arising from the late payment of commercial debts.

The Regulations have been designed to encourage prompt payment of invoices thereby improving the cash flow of smaller suppliers with anticipated ancillary benefits for the economy.

What contracts are included?

The implied terms will only apply to business-to-business contracts agreed after 7 August 2002 for the supply of goods and/or services for monetary consideration.

Both consumer credit agreement contracts and contracts intended to operate by way of mortgage, pledge, charge or other security are expressly excluded.

In addition, contracting parties can stipulate in the contract that they opt out of the Act and instead agree upon a contractual remedy for late payment of a commercial debt although there is a requirement that the remedy must be ‘substantial’ in order for the Act to not apply.

What was the position prior to new regulations?

Where the Act applied there was a statutory right to claim interest at the rate of 8% over the Bank of England base rate for late payment. Interest was calculated from the day after the date agreed for payment and, where there was no agreed date, the interest started to run after 30 days after the latest date of either:

  • the date that the supplier performed its obligation; or
  • the date the customer received the invoice.

What is the current position?

There have been changes to the period and dates from which interest will run with a difference between the period for a public authority as a customer and other businesses as customers. Contact us if you need further information regarding this.


Prior to the Regulations a supplier could also claim fixed sum compensation in relation to the costs incurred in recovering a debt as follows:

  • £40 for a debt less than £1000;
  • £70 for a debt between £1000 and £10,000; and
  • £100 for a debt of £10,000 or more.

Although the new Regulations have retained the fixed sums they have added a further option for compensation where a supplier can claim any further reasonable costs incurred in recovering the debt as compensation. This compensation is subject to a test of reasonableness as established in the Unfair Contract Terms Act 1997.

Other provisions

If there is an express contractual term regarding an agreed payment period which is longer than 60 days after any of the previous listed events then statutory interest will begin to run from the date 60 days after the latest of the events above.

The only option to avoid this is to provide that the payment period is not ‘grossly unfair’ to the supplier which has been given a broad definition as follows:-

'In determining...whether something is grossly unfair, all circumstances of the case shall be considered; and for that purpose, the circumstances of the case include, in particular:

  • anything that is a gross deviation from good commercial practice and contrary to good faith and fair dealing;
  • the nature of the goods or services in question; and
  • whether the purchaser has any objective reason to deviate...'.