What is the Late Payment of Commercial Debt (Interest) Act 1998?
If you are a small business, you will know how late payment can cause havoc with your cash flow. What can you do about it?
You can apply interest to overdue payments
The Late Payment of Commercial Debts (Interest) Act 1998 is a Statutory instrument made on 4 October 1998 which came into force in November 1998.
Why did the Late Payment Act come about?
In November 1993, the Government raised serious concerns about the damage late payments cause to small businesses. What followed was a new British standard for payments and new legislation to allow businesses to apply interest to late payments.
In his 1993 Budget Statement, the Chancellor of the Exchequer, Mr Kenneth Clarke, said:
“Late payments wreak havoc with cash flow, and for many small firms, it can make the difference between survival and failure. The habit of late payment is corroding our business culture. I am quite sure that it needs to be dealt with.”
During the 1990s, loads of surveys were conducted to provide the evidence that late payment was indeed a huge problem for UK businesses. For example, In March 1996, Bradford University surveyed 655 manufacturing companies and found that 50% of companies on 30-day payment terms were paid late with 40% of those reporting a detrimental effect on their operations.
In 1995, the Forum of Private Business reckoned that 43.6% of small businesses surveyed were still concerned with late payment, and 19.5% considered it to be a major priority for action by the Government.
By 1996, despite better procedures, the accountancy firm Coopers & Lybrand’s survey showed that late payment was still a big problem for 45% of small and medium-sized UK businesses.
Here’s the full research paper . It makes for an interesting read:
Late Payment of Commercial Debt Research Paper 97/25 12 February 1997
Who does it apply to?
Contracts between a small business supplier and a purchaser who is a United Kingdom public authority, or contracts between a small business supplier and large businesses.
Is your business cash flow still suffering because of late payments?
When is a payment officially late?
Steps to take before you apply LPCD(I)A
How to apply LPCD(I)A
How to calculate interest
How to account for interest
What is the Cashflow College?
Led by Rachael, The Cashflow Queen, the Cashflow College is your access to Rachael’s over 20 years’ experience in getting paid on time, the processes and procedures you need in place to help this happen and the techniques needed to empower you to do this every time you raise an invoice.