MB Information Age

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 originally brought in on November 1998 and later amended in August 2002 as a method of dissuading late payers and the creditor having to resort to a Debt collection process.

A single payment can be made, which is set by the amount 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 pay the total payments incurred in the Debt collection process.

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

The law allows the creditor the choice of not applying either of these charges however the debtor cannot opt out. The interest that is permitted to be charged, can be modified but only if it is agreed by both parties to the contract. Also, if both 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 paragraph in the contract with the debtor, it would be unwise to simply notify them of charges to be made 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 apply these charges, they have to 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 evaluating Debt collection software, preferably one which has templates for the Debt collection letters. Clearly, a user guide is essential in operating this process as the creditor nust be able to understand the Debt collection process, especially these legal aspects. The Debt collection letters will need to be tailored to match the many stages of the Debt collection process and this really needs to be looked after by provision of templates or examples for the Debt collection letters, which are the centre of the process. The Debt collection software and manual should be well written and work together so that if the user encounters a difficulty when processing a debt with the Debt collection software, the manual 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 clever move on the creditor’s part to amend 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 settled on time. Obviously they may also amend standing contracts to introduce agreed late payment terms. In this way future late payment should be reduced.

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