Key Change in the recovery of Late Payment Compensation
In order to comply with the terms of an EU directive aimed at achieving consistency across the EU in combating the late payment of commercial transactions, the Late Payment of Commercial Debts Regulations 2013 (“the Regulations”) were brought into force by the Government on 13 March 2013. The regulations will make amendments to the existing Late Payment of Commercial Debts (Interest) Act 1998 (“the Act”).
The main changes which will be ushered in by the Regulations concern payment periods and the amount of compensation which can be recovered by a creditor when a commercial debt is not paid on time. The changes to payment periods, which set an upper limit of 30 days when dealing with a public authority and 60 days when dealing with a private sector business are likely to have little practical effect, since the majority of businesses contract on terms well within these limits already.
More significant is the change to the amount of debt recovery costs which a creditor is able to recover from a late payer. Under the old regime, a creditor could recover only a fixed amount of compensation, determined by the size of the unpaid debt, with a maximum of £100.00 per debt/invoice being recoverable for larger debts. Section 3 of the Regulations amend the Act to insert the following:-
“If the reasonable costs of the supplier in recovering the debt are not met by the fixed sum, the supplier shall also be entitled to a sum equivalent to the difference between the fixed sum and those costs.”
This now gives creditors who may not have costs clauses in their terms and conditions, the ability to recover legal costs prior to the issue of proceedings.
All in all, this amendment is certainly a positive one for creditors. It provides a statutory basis for the recovery of an amount which genuinely reflects the costs incurred in recovering a debt prior to legal proceedings being issued, rather than leaving creditors to rely on the rigid scale of fixed fees which were often inadequate, particularly in the case of large debts.