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A User's Guide to late payment legislation:

The Late Payment of Commercial Debts (Interest) Act 1998,
as amended and supplemented by the Late Payment of
Commercial Debts Regulations 2002.
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Index
Introduction 4
• Your rights
• Changes to the late payment legislation
• Legal Warning
Section 1: Understanding the legislation 6
• Your rights and how the changes to the late
payment legislation will affect them
• Definitions in the new late payment legislation
• Jurisdiction
• How you do business

Section 2: What does the late payment legislation provide? 11

• Part 1 - Late payment interest and
reasonable debt recovery costs
• Part 2 - Grossly unfair terms and conditions

Section 3: How to claim 15

• Part 1 - How to calculate late payment interest
• Part 2 - Reasonable compensation for debt
recovery costs

Section 4: How to collect 18

Section 5: Receiving and avoiding claims for interest 21

Section 6: Definition of small and medium-sized enterprises 22

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Introduction
Your rights The results of this consultation, together The statutory right to claim interest
with work done by the Small Business and the other entitlements being made
“Part of maintaining
The United Kingdom was one of the
first countries in the European Union Service and other Government Departments, available from 7 August 2002 are not any successful
have led to the development and extension compulsory and it is for the supplier
to implement late payment legislation
of the United Kingdom’s existing late to decide whether or not to use rights
business is good
to help promote a culture of prompt
payment. There has been a statutory payment legislation. made available. cashflow management
right to interest for late payment for What is meant by "late payment legislation"? Part of maintaining any successful and the late payment
small firms owed money by large firms business is good cashflow management
or the public sector since 1 November 1998,
The phrase "late payment legislation"
and the late payment legislation can help
legislation can help
refers to the amended Late Payment of
when the Late Payment of Commercial Commercial Debts (Interest) Act 1998 and you with your credit management. you with your credit
Debts (Interest) Act 1998 came into force.
The Act was to have been introduced in 3
the Late Payment of Commercial Debts Legal Warning management.”
Regulations 2002. The User’s Guide has been prepared to
distinct phases and until 7 August 2002
provide general guidance only. This guide
phase 2 is in force. This allows small Changes to the late payment legislation
does not constitute legal advice and
businesses to charge each other statutory
See page reliance ought not to be placed on it.
interest, as well as large businesses and
No liability can be accepted by the
the public sector, for the late payment of • An extension of the scope 6
authors or publishers for its contents.
commercial debt. of the late payment
The interpretation of the law on late
Amended late payment legislation legislation
payment is ultimately a matter for the
will come into force on 7 August 2002. • Creditors will be entitled 11 courts, and users should take their own
This legislation will fulfil the UK’s obligations to "reasonable" debt advice where appropriate.
under the European Directive 2000/35/EC on recovery costs
combating late payment in commercial
• The right for an appropriate 14
transactions, and has been prepared taking
"representative body" to
into account responses to the consultation
challenge grossly unfair
that was held in Spring 2001.
contractual terms on behalf
of SMEs
• The simplification of the 16
calculation of the interest
rate for late payment

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Section 1:
Understanding the legislation
Your rights and how the changes to the late payment legislation will affect them Definitions in the new late payment Jurisdiction
legislation
- Before 7 August 2002 The explanation of the late payment
ALL small businesses can use the rights given to them by the "Late Payment of Commercial What is a public sector body? legislation set out in this document
Debts (Interest) Act 1998 (as per the table below) to claim interest retrospectively. Section 3 A public sector body is any Government refers exclusively to England and Wales.
"Do I have to claim immediately" provides further guidance about claiming retrospectively. Department, Government Agency, In Northern Ireland and Scotland, the late
Non-Departmental Public Body, and payment legislation is very similar, however
Guidance on how to use the Act, when making a claim for interest that is based upon a sale
local or public authority. due to differences in legal proceedings and
made before 7 August 2002, is set out in "The Late Payment of Commercial Debts (Interest)
Act 1998: A User’s Guide", (URN 00/1308), which will be sent to you free of charge if you What is a representative body? the impact of devolution, it is essential that
ring EC Logistics on 0870 150 2500 and ask for a copy. You can also download it from the A "representative body" is an organisation businesses and the public sector in either
website www.payontime.co.uk established to represent the collective Northern Ireland or Scotland seek
interests of small and medium-sized appropriate guidance there. We will seek to
The table below provides a brief summary of how the legislation worked prior to 7 August 2002.
enterprises in general or in a particular work closely with the devolved Governments
The earliest date from which a commercial Who can use the legislation sector or geographical area. to ensure that the approach to the interest
contract can create a claim for interest rate and other entitlements is co-ordinated
How is a SME (small and medium-sized
under the late payment legislation. and consistent.
enterprise) defined?
From 1 November 1998 Small businesses can claim statutory An SME has: Appropriate authorities in Northern
interest for late payment from large Ireland or Scotland can be contacted at:
fewer than 250 employees; and
businesses and most of the public sector. Northern Ireland
either has a turnover of less than
From 1 November 2000 In addition to the above, small businesses The Registrar of Companies
EUR 40 million
can charge other small businesses 64 Chichester Street
or an annual balance sheet total Belfast
statutory interest for late payment.
not exceeding EUR 27 million; BT1 4JX
Definition and is independent. Scotland
a small business for these purposes has 50 or fewer employees. Section 6 provides the full definition of an Business Environment and
Guidance SME for the purposes of this legislation. Consumer Affairs Branch
If you are seeking advice on late payment that has arisen from sales agreed before Guidance: Enterprise and Industry Division
7 August 2002, you should consult the user’s guide referred to above. to convert your turnover or annual Scottish Executive Enterprise and
balance sheet figures into a EURO Lifelong Learning Department
- From 7 August 2002
equivalent, you need to use the reference 4th Floor
All businesses, irrespective of size, and public sector bodies can claim statutory interest
rate that is published annually by the Meridian Court
for the late payment of commercial debts. In addition to this the entitlements identified
European Commission, and which can 5 Cadogan Street
in the introduction will be available. This user’s guide explains how the late payment
be found in the "Official Journal of the GLASGOW
legislation in England and Wales will work from 7 August 2002.
European Communities". G2 6AT

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“Purchasers should not negotiate longer credit periods to

avoid the possibility of late payment.”

All the rights set out in this document How you do business To prevent purchasers abusing the right It will be for the supplier to show that a
should be available throughout the to agree their own arrangements with remedy is not substantial (although the
Is the legislation the only way I can
European Union from 7 August 2002. the supplier, any such contractual remedy purchaser may have to provide evidence
remedy late payment?
However there may be differences in how for late payment must be "substantial" that it is fair and reasonable in the
No. A supplier and purchaser can make
these rights are provided. For example, otherwise it will be void and the debtor circumstances). The court will then have
their own arrangements for a remedy to
with regard to the right to be able to claim will be unable to rely on it. It will be to judge whether, in all the circumstances
late payment. This is known as contractual
interest for late payment, countries that struck down by the courts and the terms (including what is usual for that sector of
interest. If they do make their own
are within the Euro zone will use the of the late payment legislation will apply business), the remedy meets the criteria
arrangements for contractual interest,
European Central Bank base rate and they to the contract. of a "substantial remedy" set out above.
the late payment legislation will not
will probably add to this 7% and not the Any contract terms are void if they - The court will take into account such factors
apply. However, if they do not make
8% uplift that the legislation here provides. as whether there was equality of bargaining
arrangements, the remedies for late (a) confer a contractual right to interest position between the parties and whether
Guidance: payment provided by the late payment that is not a substantial remedy for standard terms have been imposed.
Businesses involved in commercial legislation will apply. late payment of the debt, or
contracts with businesses and/or a public Examples of contract terms which a court
(b) vary the right to statutory interest so as might declare void, to the extent that they
sector body not domiciled in England,
to provide for a right to statutory interest relate to late payment because they result
Wales, Northern Ireland or Scotland,
that is not a substantial remedy for late in there being no substantial remedy for
should make sure that they know what
payment of the debt, late payment, might include:
their rights are under the late payment
legislation of the jurisdiction to which unless the overall remedy for late payment • a credit period that is significantly
the contract would be subject if a dispute of the debt is a substantial remedy. different from custom and practice
were to arise. How will the courts know whether a in that industry;
Any commercial contract made under the remedy is substantial or not? • a credit period that is significantly
law of another member of the European In determining whether a remedy is different from other supply contracts
Union, will have access to entitlements substantial or not, the courts will consider operated by the purchaser;
resulting from late payment legislation, all the circumstances, including the rate
• an interest rate on late payment,
which are similar to those identified in of interest that applies to late payments
significantly lower than the statutory
this document. and the length of credit periods. Purchasers
rate, that fails to act as a deterrent to
should not negotiate longer credit periods
the purchaser paying late because it is
to avoid the possibility of late payment.
lower than the purchaser’s theoretical
Where a credit period is considered to be (or actual) cost of agreed borrowing;
excessive, the courts may strike it down and
replace it with the 30 days default period
provided by the late payment legislation.

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Section 2:
What does the late payment
legislation provide?
• an interest rate on late payment, Whether the purchaser had given any From 7 August 2002 the late payment Part 1 - Late payment interest and
significantly lower than the statutory benefit in return for the term in question legislation will provide all businesses and reasonable debt recovery costs
rate, that fails to recompense the supplier would be relevant. However, it must be the public sector with 4 entitlements:
When can I claim either or both of them?
for being kept from their money, because stressed that the courts will look at the i) the right to claim interest for late Claim(s) can be made once a payment
it is below the supplier’s theoretical issue of a substantial remedy for late payment; is deemed late. Remember that if your
(or actual) cost of agreed borrowing; payment on a case-by-case basis.
ii) the right to claim reasonable debt contract makes provision for late payment
• an interest rate on late payment, Guidance: recovery costs, unless the supplier interest, the statutory right to interest and
significantly lower than the rate used in The above list is not intended to be exhaustive has acted unreasonably; the right to reasonable debt recovery costs
other supply contracts operated by the and might not necessarily apply in every case. will not apply. You may wish to contract for
iii) the right to challenge contractual
purchaser or than is normal in that sector reasonable recovery costs to cover the event
How does the late payment legislation terms that do not provide a substantial
of the economy; of late payment or if you are litigating you
affect existing custom and practice? remedy against late payment; and
• a contract term that has the effect of may be able to recover from the court some
The late payment legislation does not iv) the right for "representative bodies"
reducing the amount of interest that can of the costs and disbursements incurred or
replace existing custom and practice. If the to challenge contractual terms that
be claimed, such that the compensation some of your reasonably foreseeable losses
parties have undertaken business on the are grossly unfair on behalf of SMEs.
for late payment is insufficient to flowing from the late payment.
basis of usual industry practice (for example,
recompense the supplier or to act The first part of this section will address the When is a payment late?
payment at the end of the month following
as a deterrent to late payment; right to interest and reasonable compensation
the date of the invoice), then this practice Where there is an agreed credit period, and
• excessive information requirements will probably still apply. However, if any for debt recovery costs.The second part will
the supplier has agreed, either in writing or
that must be fulfilled under the contract remedy for late payment is not "substantial", deal with contract terms.
orally, a credit period with the purchaser, the
before any credit period might start. the terms of the late payment legislation Don’t I risk antagonising my customers payment is late if it is made after the last day
will apply. if I use the legislation? of the credit period.
Using the legislation is your statutory right If no credit period has been agreed, then
and is not designed to jeopardise existing the Act sets a default period of 30 days after
customer relationships. Rather than seeking which interest can run. This default period
to encourage claims for interest and/or debt does not constitute a statutory credit period.
recovery compensation, the legislation’s Where no credit period is agreed in a
primary aim is to deter companies from contract, the principal debt will still become
paying their bills late. By treating the due from the moment the goods are
legislation as an integral part of your delivered or the service performed.
“it must be stressed that the courts will look at the issue of a payment terms, customers will become
substantial remedy for late payment on a case-by-case basis” educated to the fact that this is part of
the way that you like to do business.

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“the late payment legislation is designed as a deterrent

against late payment to be used as part of standard
business practices and credit management techniques”

The 30-day default period starts running Other contracts stipulate that payment Where either: • the amount owed, and what it is owed for
from the later of the actions: should be made by instalments in relation i) the purchaser is dealing with a new (stating which principal debt it relates to,
• the delivery of the goods or the to a delivery of any part of the goods or supplier; or quoting the original number of the
performance of any part of the service. invoice that requested payment of the
performance of the service by the ii) there is any other reason to doubt
Where payment of such an instalment is principal debt);
supplier; or whether this kind of arrangement can
made late then statutory interest runs on • to whom payment should be made;
• the day on which the purchaser has be regarded as established practice
the instalment from the day after the day
notice of the amount of the debt. between the supplier and purchaser • by what date;
on which the part of the goods are delivered
A payment is late once the agreed credit or the part of the service is performed. the purchaser should ensure that there • to what address; and
period or the default period has expired. is an agreed credit period - otherwise
Finally, where an advance payment forms • by what method the payment should be
the default period of 30 days might apply.
What happens if the contract requires part of the contract price, but is not related made (e.g. cheque, electronic transfer etc).
advance payment(s)? to the delivery of some of the goods or How do I make a claim for interest and/or
How should I inform purchasers that they
performance of part of the service, then reasonable debt recovery costs?
There are several ways in which a contract will be charged interest and/or reasonable
can require payment(s) to be made before statutory interest runs from the day after When the payment is late, a supplier debt recovery costs if they pay late?
the goods are delivered or the service is the day on which all the goods are delivered should inform the purchaser that he or she
Rather than using it as a last resort when
performed. The Act does not give a right to or the whole service is performed. is claiming interest on the late payment under faced with an overdue invoice, the late
interest unless at least some of the goods the late payment legislation. It may be helpful payment legislation is designed to be a
What happens if there is no agreed credit
have been delivered or part of the service to indicate the daily rate of interest that will be deterrent against late payment, and to be
period but the purchaser usually pays at
performed unless contractually agreed. claimed, although it is not necessary to do so. used as part of standard business practices
the end of the month following the month
If the parties wish to agree otherwise, they The amount of compensation for debt and credit management techniques. In much
in which the invoice is received?
will need to make provision in the contract recovery costs available is determined by the same way as a supplier reminds
Some purchasers and suppliers have a
for a substantial remedy instead of a table, which the supplier can refer to. purchasers that payment is due within a
long-standing relationship in which this
statutory interest. kind of payment arrangement has become For the purpose of claiming interest and/or specified time limit, the supplier should also
Some contracts stipulate that the whole compensation for debt recovery costs remind them that interest and compensation
standard practice. In these cases, the
contract price should be paid before the notification can be oral, but it is better to for debt recovery costs will be charged on
credit period is considered to end on the
put it in writing, as this makes it easier to overdue invoices using the entitlements
goods are delivered or the service is last day of the month following the month
prove that notice has been given. It is provided by the late payment legislation.
performed. If payment has not been in which the invoice is received. Interest
necessary to provide all the information In addition to informing purchasers verbally
made before the goods are delivered starts to run on the next day.
that should be carried on a standard invoice: of their right to charge interest and/or claim
or the service is performed, then statutory
interest starts to run from the day after the • how much is owed (it may be helpful to compensation for debt recovery costs as part
day on which all the goods are delivered or provide the total amount of interest owed of standard payment terms, suppliers should
the whole service is performed. at the date of the invoice for interest, and, state clearly on all written communications,
if the principal has not been paid, the rate at credit application forms, order confirmations,
which the interest will continue to accrue); invoices and all contracts:

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Section 3:
How to claim
"We understand and will exercise our See "How you do business" in Section 1. This section will be divided into two parts, This creates a reasonable expectation
statutory right to claim interest and Representative bodies officially recognised Part 1 explains how to calculate the amount that it would be possible to pursue and
compensation for debt recovery costs as, or having a legitimate interest in of interest that you are entitled to and Part 2 claim statutory interest for late payment
under the late payment legislation if we are representing SMEs may go to court on advises how much compensation you are up to 6 years (5 years in Scotland)
not paid according to agreed credit terms." behalf of the SME(s) and challenge as entitled to for reasonable debt recovery retrospectively, or back to the time when
costs. First however: the appropriate legislation came into force,
Do I have to charge interest and/or debt grossly unfair contractual terms which
whichever is the shorter of the two periods
recovery costs to all late payers? purchasers wish to rely upon. If the party Do I have to claim immediately?
(businesses not based in England or Wales
No. It is not compulsory to use the late payment that makes the challenge is successful, the There is no doubt that the older the debt the
should read "Jurisdiction" in Section 1).
legislation. A supplier is free to decide whether Court will strike down as void the offending less likely it will be paid; however a claim for
term(s) and the provisions of the late interest against a late payment does not need Guidance:
or not to make a claim for interest or
compensation for debt recovery costs. payment legislation will apply instead. to be made straightaway. A supplier has six The issue of limitation, not being able to
Representation in court years in England, Wales and Northern Ireland, claim retrospectively, will only arise in 2004
Part 2 – Void (grossly unfair) contractual in England and Wales because claims for
and five years in Scotland, in which to make
terms Small and medium-sized enterprises
the claim (businesses not based in England or late payment interest under the late payment
(SMEs) can ask a representative body to go
What are void (grossly unfair) contractual Wales should read "Jurisdiction" in Section 1). legislation cannot pre-date the coming into
to court on their behalf. Such a body might
terms? Receivers or liquidators of a business may force of the relevant part of the legislation,
represent SMEs as a whole or cover a
Void (grossly unfair) contractual terms pursue its purchasers for interest on late see the table below.
particular sector or geographical area.
undermine the purpose of the late payment payment going back over this period. Can I charge retrospectively on my existing
legislation. For example, they might seek to Funding Businesses may also claim interest after debtors’ list?
deny the supplier their right to reasonable There is no specific funding available to they have stopped supplying a purchaser.
Yes. It is possible to claim statutory interest
compensation for debt recovery costs and/or support challenges in court against grossly Purchasers who wish to avoid future claims
for late payment up to 6 years in the past
remove or minimise the supplier’s right to unfair contractual terms. Any representative for interest should pay their bills on time.
(5 years in Scotland), or as far back as the
statutory interest for late payment. bodies going to court are subject to normal The six-year period is derived from appropriate legislation (see table below) is
For example, the customer might try to costs rules and litigation liabilities. case law and the Limitation Act 1980. available, whichever is the shorter period.
impose unilaterally a reduction in the rate of Can an independent representative body The earliest date from which a Who can claim back for that?
interest to be charged for late payment and/or challenge void (grossly unfair) commercial commercial contract can create
increase the length of the credit period. contract terms and conditions without having a claim for interest under the
Guidance: been requested to by at least 1 SME? late payment legislation.
See "How you do business" in Section 1, Yes. As long as the representative body has From 1 November 1998 Small businesses can claim statutory interest for late
which will also help. a demonstrable, relevant link with the SME(s), payment from large businesses and most of the public sector.
and has been set up specifically to act in the From 1 November 2000 Small businesses can also claim statutory interest for
What can you do?
interests of SMEs as a whole or for a late payment from other small businesses.
Any business or the public sector is
particular sector or geographical area. From 7 August 2002 Anyone involved in a commercial contract can claim statutory
entitled to go to court and challenge
interest or claim compensation arising from late payment.
such terms and conditions.

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“If the purchaser owes the principal and interest, unless

payment is accepted on other terms, any part payment of
the debt will go to reduce the amount of the interest first”

Part 1 - How to calculate late payment To determine what interest rate you should Example Part 2 - Compensation arising from late
interest use when calculating interest on a late If the base rate is 4% for the six-month payment
payment, you need to add 8% to the period when the debt became late, then the
What rate of interest can be charged? How much compensation am I allowed?
"reference rate" that covers the six-month statutory interest rate is 12% (4% base rate
At the start of a six-month period the The table below shows how much
period in which your debt became late. plus 8%)
official dealing rate of the Bank of England compensation you are entitled to.
(the base rate) will be made a fixed How do I find the correct base rate to use? Debt is £851.06
plus £148.94 VAT = total £1,000 Size of the unpaid debt To be paid to
"reference rate" for the subsequent six The correct interest rate to be used can
the creditor.
months. The table below shows how be found by visiting www.payontime.co.uk If this debt is 30 days late, then the
this works. The Better Payment Practice Group will interest owed is: Up to £999.99 £40
also issue a press release with the base £1,000 to £9,999.99 £70
The six-month £1,000 x 12% = £120 (the annual rate)
rate to be used for the forthcoming
period £120 ÷ 365 = 32.9p (the daily rate) £10,000 or more £100
6-month period. The Bank of England
The Bank of England base 1 January to base rate on the 30 June or 31 December 32.9 pence x 30 days = £9.86 (the interest
rate on 31 December, will 30 June can be found by looking in the financial owed to date)
be the "reference rate" for pages of the national press of the
appropriate date (libraries will be able When does the interest stop running?
The Bank of England base 1 July to
to help) or by visiting the Bank of England Interest stops running on a debt once the
rate on 30 June, will be 31 December
website at www.bankofengland.co.uk. principal has been paid i.e. once payment
the "reference rate" for
is received but not yet cleared if relevant.
How do I calculate the interest charge?
If the purchaser owes the principal and
The interest owed on a late payment is interest, unless payment is accepted on
simple, not compound, interest. It is other terms, any part payment of the debt
calculated like this: will go to reduce the amount of the
Debt x interest rate x the number of days late interest first.
365

Do I calculate inclusive or exclusive of VAT?

You charge interest on the gross amount of
the debt (including any element of VAT), but
you do not pay VAT on the interest.

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Section 4:
How to collect
How do I collect the interest for late Guidance: to collect from the debtor, without actually If this happens, and once all collection
payment and/or the debt recovery This entitlement to compensation for debt transferring the debt. Similarly, a factor methods and negotiations have been
compensation? recovery costs does not affect your other might expect a supplier to act as its agent exhausted, if the supplier considers
The interest and compensation are payable rights, and you may still go to court to by continuing to press debtors for payment that his/her claim for interest and/or
by law. It is up to the supplier to decide recover specific fees and charges paid to of debts they have sold to him. Someone compensation for debt recovery costs
whether or not to enforce this right. It is specialist firms or advisers if you feel that who is acting as an agent in this way can is a proper one, he/she can go to court
good business practice to agree payment is necessary. If you do go to court the calculate and claim interest and invoice or consider the following actions:
terms "up-front", preferably in writing. statutory compensation can be recovered for it. Some agencies offer a legal service, • to withhold the supply of further goods
You could also agree interest and along with late payment interest. enabling them to issue court proceedings. or services until interest is paid;
compensation provision or alternatively The supplier can transfer the whole debt
Can my right to interest or compensation • to refuse to trade on credit terms with
indicate that you will rely on the statutory (that is, both the principal sum and the
for debt recovery costs be sold or the purchaser in the future;
rights, see the penultimate question of interest) or the principal sum alone, or the
transferred to another party such as
Part 1, Section 2. interest alone. Where only part of the debt • to negotiate with the purchaser to ensure
factors or collection agencies?
has been transferred, the supplier can act that future invoices are paid on time.
If the purchaser pays late, then the supplier Yes. If any part of the debt - i.e. the interest
should make a written demand for the as an agent for the third party in respect How do I use the courts to collect payment?
or the principal or both - is assigned to a
interest and/or compensation for debt of the transferred part, and the third party If the purchaser does not pay the interest
third party, the original supplier should
recovery costs as described earlier in for the supplier for the part that has not and/or compensation for debt recovery
inform the purchaser in writing, saying to
Section 3. been transferred. costs, the supplier can pursue the claim
whom the debt has been assigned.
Whatever the arrangements between the through the courts. Taking someone to
The third party, regardless of its size, can
supplier and third party, the purchaser court can be an effective method of debt
then pursue the debtor through the courts
will never be required to pay interest recovery, but not always the best option
for the interest etc.
twice on the same debt. for example, if your debtor is insolvent,
Sometimes a supplier sells a debt without the chances of recovering the debt are
notifying the debtor. When this happens, the What happens if a purchaser does not agree
minimal and you will have incurred court
transfer is effective as far as the original with the interest or compensation for debt
costs as well. The court procedures are
supplier and the third party are concerned. recovery costs that is charged to them?
designed to be quick and easy to operate.
However, as far as the debtor is concerned, A purchaser may not agree with an interest County Court offices can provide information
the debt is still owed to the original supplier, charge (for example, if the goods delivered about court procedures, copies of the forms
and it is only the original supplier who can were faulty and had to be repaired, or they and help with filling them in. The addresses
pursue the debtor through the courts. were delivered late). If this happens, the and telephone numbers of County Courts
purchaser may negotiate with the supplier are listed in the telephone directory
The person entitled to receive the money
to reduce or amend the interest charge. under "Courts".
can employ an agent to collect it for them.
For example, a supplier might employ a Sometimes the purchaser may be unable
debt collector to act as its agent in seeking to reach any agreement with the supplier.

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Section 5:
Receiving and avoiding
claims for interest
Recently, the Court Service has launched How will a County Court Judgment affect What do I do if I receive a claim for interest? • Purchasers should raise any genuine
a facility called "Money Claim Online", the purchaser? If the payment was made late then interest complaints or disputes as soon as they
where it is possible to claim debts of less If the court makes an award against the and compensation for late payment are arise, and at the very latest upon receipt
than £100,000 electronically using the purchaser, the purchaser may find that due and payable under the late payment of an invoice.
internet, more information can be found their credit rating is detrimentally affected legislation (see Section 2 – What does • If a dispute or complaint arises, purchasers
at www.courtservice.gov.uk/mcol/ . if they do not make the payment within a the late payment legislation provide?). should obtain (where possible) written
The supplier should, as a matter of best month, because this non-payment will The supplier has a legal right to the confirmation from the supplier that a
practice give notice to the purchaser of an be registered at Registry Trust Ltd. interest and compensation for debt query exists.
intention to issue proceedings to recover (the register of County Court Judgements), recovery costs, and if necessary, to
seek enforcement through the courts As a supplier, how can I protect my right
the interest and/or compensation for late and this information will be made available
for non-payment. To avoid litigation, if to claim interest and compensation for
payment. If legal proceedings are taken, to credit references agencies and any
any interest and/or compensation for debt recovery costs?
the purchaser may set out the grounds of other party searching the registry. This will
make obtaining credit in the future much debt recovery costs are legally due and • Suppliers should evaluate in advance the
his dispute to contest the claim. It will then
more difficult, as the purchaser will be have been claimed, they should be paid. purchaser’s financial status to minimise
be for the court to decide the matter.
perceived as a poor payer. the risk of providing goods or services to
Going to court or using Money Claim If there is a genuine dispute, or the charge
a company that cannot or will not pay.
Online should be a last resort. Be sure Are there any valid grounds for disputing has been made incorrectly, then the claim
interest and/or compensation for debt should be queried at once. • Suppliers should send accurate invoices
that you have tried all other solutions,
recovery costs claims? and statements of account promptly.
including alternative dispute resolution, How can I ensure that I don’t receive a
if appropriate, the Court Service offers The purchaser may ask the court to be claim for interest and/or compensation • Suppliers should ensure that genuine
guidance on this. excused from paying part or all of the for debt recovery costs? customer complaints or disputes are
interest or debt recovery costs, either as • Purchasers must not enter into a contract resolved as early as possible and should
The court will expect the parties to act
a defence to a claim made by the supplier that realistically they do not think they act reasonably at all times.
reasonably in exchanging information and
documents relevant to the claim prior to or by applying to the court themselves. will be able to fulfil. (A purchaser’s • Suppliers should have an effective
litigation being launched and generally in This might happen, for example, if the reputation and credit rating will be collection system in place to ensure
trying to avoid the necessity for the start supplier did not give the purchaser damaged, notwithstanding the increased compliance with agreed terms.
of proceedings. enough information about the amount risk of having to pay significantly more
Can purchasers and suppliers work together
owed, where payment should be sent than originally envisaged as interest
to promote a better payment culture?
or by what method it should be made accrues and compensation is claimed.)
(cash, cheque etc), or was otherwise Good communication between supplier and
• Purchasers should ensure that agreed purchaser can help reduce the incidence of
unreasonable in its conduct. The court
payment terms are complied with. late payment. Purchasers and suppliers
has the power to remit interest that is
due either partially or wholly. • Purchasers should reconcile invoices should ensure that payment terms are
and statements of account promptly. agreed at the start of the trading relationship
and that they are clear to all parties.

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Section 6:
Definition of small and
medium-sized enterprises
This extract is taken from the Commission 2.Where it is necessary to distinguish 4.In calculating the thresholds referred 7.The number of persons employed
Recommendation 96/280/EC of 3 April between small and medium-sized to in paragraphs 1 and 2, it is therefore corresponds to the number of annual
1996 concerning the definition of small enterprises, the 'small enterprise' necessary to cumulate the relevant working units (AWU), that is to say, the
and medium-sized enterprises is defined as an enterprise which: figures for the beneficiary enterprise number of full-time workers employed
(OJ L 107, 30.4.1996, p. 4). • has fewer than 50 employees and and for all the enterprises that it directly during one year with part-time and
1.Small and medium-sized enterprises, or indirectly controls through possession seasonal workers being fractions of
• has either, of 25 % or more of the capital or of the AWU. The reference year to be
hereinafter referred to as 'SMEs', are
defined as enterprises which: • an annual turnover not exceeding voting rights. considered is that of the last
EUR 7 million, or 5.Where it is necessary to distinguish approved accounting period.
• have fewer than 250 employees, and
• an annual balance-sheet total not micro-enterprises from other SMEs, 8.The turnover and balance sheet total
• have either, exceeding EUR 5 million, these are defined as enterprises having thresholds are those of the last approved
• an annual turnover not exceeding EUR • conforms to the criterion of independence fewer than 10 employees. 12-month accounting period. In the case
40 million, or as defined in paragraph 3. 6.Where, at the final balance sheet date, of newly-established enterprises whose
• an annual balance-sheet total not an enterprise exceeds or falls below the accounts have not yet been approved, the
3.Independent enterprises are those thresholds to apply shall be derived from
exceeding EUR 27 million, which are not owned as to 25 % or employee thresholds or financial ceilings,
this is to result in its acquiring or losing a reliable estimate made in the course of
• conform to the criterion of independence more of the capital or the voting rights the financial year."
as defined in paragraph 3. by one enterprise, or jointly by several the status of 'SME', 'medium-sized
enterprises, falling outside the definitions enterprise', 'small enterprise' or
of an SME or a small enterprise, 'micro-enterprise' only if the phenomenon
whichever may apply. This threshold may is repeated over two consecutive
be exceeded in the following two cases: financial years.

• if the enterprise is held by public investment

corporations, venture capital companies or
institutional investors, provided no control is
exercised either individually or jointly,
• if the capital is spread in such a way that
it is not possible to determine by whom it
is held and if the enterprise declares that
it can legitimately presume that it is not “In the case of newly-established enterprises whose
owned as to 25 % or more by one
enterprise, or jointly by several enterprises,
accounts have not yet been approved, the thresholds to
falling outside the definitions of an SME or apply shall be derived from a reliable estimate made in
a small enterprise, whichever may apply. the course of the financial year”
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Additional copies and further information

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are to raise awareness levels of the late (SBS) – the agency within
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Printed in the UK on recycled paper with a minimum HMSO score of 75.

First published April 2002. Department of Trade and Industry.
Crown Copyright. http://www.dti.gov.uk/
DTI/Pub 6042/6k/4/02/NP.URN 02/883 0