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Explaining Late Payments in Commercial Contracts: The Late Payment of Commercial Debts (Interest) Act 1998 and Section 69 of the County Courts Act 1984

Late payments from clients can significantly disrupt a business’s cash flow, causing financial strain and operational difficulties. This issue has become increasingly common in today’s challenging economic climate. To help businesses manage this risk, English law provides mechanisms to claim interest on late payments. This article will explore when to use the Late Payment of Commercial Debts (Interest) Act 1998 and Section 69 of the County Courts Act 1984, and how they can benefit your business.

The Late Payment of Commercial Debts (Interest) Act 1998

When to Use:

  • Business-to-Business (B2B) Transactions: This Act applies exclusively to commercial transactions between businesses. It addresses late payments in the supply of goods and services in a business-to-business context.
  • Contracts Silent on Interest: The Act is particularly useful when your contracts do not specify an interest clause for late payments. It provides a statutory right to claim interest and reasonable debt recovery costs, serving as a fallback mechanism.
  • Standard Interest Rate: Under this Act, the interest rate is 8% plus the Bank of England’s base rate.

Not Applicable:

  • Business-to-Consumer (B2C) Transactions: The Act does not apply to transactions involving consumers. Therefore, it cannot be used to claim interest from individual customers who purchase goods or services for personal use.
  • Certain Contract Types: The Act excludes certain types of contracts, such as mortgages or securities.

Key Features:

  1. Scope: Applies to contracts for the supply of goods and services in a B2B context.
  2. Interest Rate: 8% plus the Bank of England’s base rate.
  3. Debt Recovery Costs: Businesses can also claim reasonable debt recovery costs.
  4. Interest Accrual: Interest typically starts accruing 30 days from the later of the delivery of goods/services, receipt of the invoice, or completion of any acceptance procedures.

Section 69 of the County Courts Act 1984

When to Use:

  • Business-to-business and Business-to-Consumer Transactions: This provision can be used in a broader range of scenarios, including both B2B and B2C contexts. It is not limited to commercial transactions and can be invoked in any county court proceedings where a debt or damages are being claimed.
  • Legal Proceedings: It is particularly relevant when you decide to take legal action to recover a debt. If you have to pursue the overdue payment through the courts, Section 69 allows you to claim interest on the debt from the date it became due until the date of judgment.
  • No Existing Interest Clause: This section is often used when there is no pre-existing interest clause in the contract, providing the court with the discretion to award interest.

Interest Rate:

  • Court Discretion: The interest rate under Section 69 is typically set at 8% per annum, but the court has the discretion to determine the appropriate rate and period for interest based on the circumstances of the case.

Practical Differences:

  1. Scope and Application:
    • Late Payment of Commercial Debts (Interest) Act 1998: Use this Act for commercial transactions between businesses where no specific interest clause is included in the contract. It automatically implies a right to claim interest and reasonable costs for recovering debts.
    • Section 69 of the County Courts Act 1984: Use this provision when pursuing overdue payments through the court system, applicable in both B2B and B2C transactions. It provides a judicially awarded interest on debts or damages.
  2. Business Relationships:
    • B2B Transactions: The Late Payment of Commercial Debts (Interest) Act is specifically designed for business-to-business transactions, ensuring businesses can claim interest and costs from other businesses.
    • B2C Transactions: Section 69 is versatile and can be applied in cases involving consumers, which is not covered by the Late Payment of Commercial Debts (Interest) Act.

Conclusion

Both the Late Payment of Commercial Debts (Interest) Act 1998 and Section 69 of the County Courts Act 1984 provide mechanisms for claiming interest on late payments, but they are applicable in different contexts and scenarios. Understanding the distinctions and appropriate use cases for each can help businesses effectively manage late payments and ensure financial stability.

For tailored advice and to ensure compliance with relevant laws, consulting a commercial lawyer is recommended. By being proactive and informed about these legal provisions, businesses can better manage late payments, mitigate associated risks, and maintain smoother cash flow and financial stability.

If you are facing issues with on going late payments from your customers contact us at McKenzie Consultancy & Legal, we have extensive legal expertise and a strong track record in securing money that is owed. To find out more head to www.mckenzie-legal.co.uk