The Late Payment of Commercial Debts (Interest) Act 2002 is described on the Office of Public Sector Information UK government website as “An Act to make provision with respect to interest on the late payment of certain debts arising under commercial contracts for the supply of goods or services; and for connected purposes.” The act was first brought in on November 1998 and later amended in August 2002 as a way of discouraging late payers and the creditor having to instigate a Debt collection process.

A single payment can be made, which is governed by the value of the debt, where a debt of up to £999.99 the payment is £40, from £1000.00 to £9,999.00 it is £70 and for £10,000.00 and greater it is £100. This payment is fixed and so the creditor is unable to set it to cover the total costs incurred in the Debt collection process.

Daily interest can be chargeable on the overdue account and the interest rate is set at 8% plus the Bank of England base rate. The date on which the debt is overdue is important because the amendment of 2002 made a change to this, in that debts before August 2002 could be charged at 8% over the Bank of England bank rate on the date the account went late. Debts after August 2002 have the interest rate calculated in 2 bands for a calendar year where if the account became late on or before June 30th, the rate at December 31st of the previous year is applied and for debts that are overdue on or after July 1st, the rate on June 30th will be applied.

The legislation allows the creditor the option of not applying either of these charges however the debtor may not opt out. The interest that is allowed to be charged, can be changed but only if it is agreed by both parties to the contract. Also, if the two parties agree a late payment system in the contracts then this act does not apply.
So, if the creditor does not have a late payment clause in the contract with the debtor, it would be an unwise move to just notify them of charges to be applied but more likely to success to discuss it with them first, explaining what the law allows. In this way they hope to avoid losing the customer.

If the creditor does wish to implement these charges, they must send out Debt collection letters to the debtor so that it is in writing and in order to do this best the creditor is best looking at Debt collection software, preferably one which contains templates for the Debt collection letters. Clearly, a set of instructions is so important in using this process as the creditor has to be able to understand the Debt collection process, especially these legal aspects. The Debt collection letters has to be tailored to suit the distinct parts of the Debt collection process and this is best looked after by provision of templates or examples for the Debt collection letters, which are the heart of the process. The Debt collection software and user guide should be well written and work in harmony so that if the user discovers a difficulty when processing a debt through the Debt collection software, the user guide should have step by step guides for the Debt collection process so the user can inspect what they have done and hopefully correct the difficulty.

It would be a positive move on the creditor’s part to revise their standard contract to introduce a late payment clause, to the effect that the Late Payment of Commercial Debts (Interest) Act 2002 will be applied where accounts are not paid on time. Clearly they may also amend current contracts to introduce agreed late payment terms. In this way future late payment should be reduced.

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