As a supplier, you rely on timely payment of invoices to keep your business running smoothly. Late payment of commercial debts can cause cash flow problems, which in turn can lead to other issues such as difficulty in paying suppliers or staff, and even risking going out of business. Fortunately, the Late Payment of Commercial Debts Interest Act 1998 (LPCDIA) was introduced to help address this issue.
In this article, we’ll explore what the LPCDIA is, how it works, and how you as a supplier can use it to chase late payments.
What is the Late Payment of Commercial Debts Interest Act 1998?
The LPCDIA is a piece of UK legislation that was introduced to tackle the issue of late payment of commercial debts. The act applies to all commercial contracts, including contracts between businesses and between businesses and public authorities such as councils and government. It provides suppliers with a statutory right to claim interest on late payments, as well as a fixed sum to cover the cost of recovering the debt.
How does the Late Payment Act work?
Under the LPCDIA, if a customer fails to pay an invoice on time, the supplier is entitled to claim interest on the amount owed. The interest rate is currently 8% above the Bank of England base rate, and accrues daily from the day after the payment is due. This means that the longer the payment is overdue, the more interest the supplier is entitled to claim.
In addition to interest, the supplier can also claim a fixed sum to cover the cost of recovering the debt. The amount of the fixed sum depends on the amount owed, as follows:
- £40 for debts up to £1,000
- £70 for debts between £1,000 and £10,000
- £100 for debts over £10,000
These fixed sums are intended to cover the supplier’s reasonable costs in chasing the debt, such as sending reminder letters or engaging a debt recovery agency.
How can suppliers use the LPCDIA as part of their cash collection process?
If you are a supplier who is struggling to collect payment from a customer, the LPCDIA can be a useful tool to help you chase the debt. Here are some steps you can take to use the act as part of your cash collection process:
- Check your payment terms
Before you can use the LPCDIA to claim interest and fixed costs, you need to make sure that your payment terms comply with the act. The act requires payment to be made within 30 days of receipt of an invoice, unless you have agreed different payment terms in writing with your customer.
- Send reminder letters
If a payment is overdue, the first step is to send a reminder letter to the customer. This letter should set out the amount owed, the date the payment was due, and a reminder that interest and fixed costs will be added if the payment is not made within a certain timeframe. You can also use this letter to request payment by a specific date. This doesn’t have to be a written or printed letter, and can be sent via email.
- Engage a debt recovery agency
If the customer still fails to pay, you may need to engage a debt recovery agency to help you chase the debt. The cost of this service can be added to the fixed sum you can claim under the LPCDIA.
- Claim interest and fixed costs
If the debt remains unpaid, you can claim interest and fixed costs under the LPCDIA. This can be done through the courts or by using a debt recovery agency. The interest and fixed costs will be added to the amount owed by the customer.
The Late Payment of Commercial Debts Interest Act 1998 provides suppliers with a valuable tool to help them chase late payments from customers. By claiming interest and fixed costs, suppliers can recover some of the costs associated with chasing a debt, and discourage customers from paying late in future.