Claiming compensation under the Late Payment of Commercial Debts (Interest) Act 1998

Under the Late Payment of Commercial Debts (Interest) Act 1998 (“the Act”), as amended by the Late Payment of Commercial Debts Regulations 2002 businesses are entitled to charge interest on certain debts arising under commercial contracts for the supply of goods and/ or services and for connected purposes.

In addition to this entitlement to charge interest the Late Payment of Commercial Debts Regulations 2002 (“the Regulations”) amended the Act by giving businesses the right, in certain circumstances, to claim compensation arising out of late payment.

The right to compensation does not apply to contracts made on or before 6 August 2002.

Who can claim compensation under the Act?

Only businesses are able to claim compensation under the Act. “Business” includes a profession and the activities of a government department or a local or public authority.

When can compensation under the Act be claimed?

Compensation can only be claimed by a business where they have the right under the Act to claim interest for late payment of a debt and where the right to claim “statutory interest” (interest claimed in accordance with the provisions of the Act) has started to run.

As a general rule interest can be claimed under the Act if there is a “contract for the supply of goods or services” and the purchaser and the supplier are each acting in the course of a business.

Normally the right to claim statutory interest will start to run on the date the parties agreed that payment would be made or if the parties did not agree a date for payment, 30 days from the date on which the supplier performed its obligations under the contract.

For further information as to when statutory interest can be claimed and when the right to claim statutory interest starts to run read our article called “Claiming Interest under the Late Payment of Commercial Debts (Interest) Act 1998”.

How much compensation can be claimed?

The amount a business can claim by way of compensation under the Act depends upon the size of the debt. The amounts are as follows:

  • £40 for debts of less than £1,000;
  • £70 for debts of £1,000 or more, but less than £10,000;
  • £100 for debts of £10,000 or more.

Can compensation be claimed in addition to interest claimed under the Act?

The right to claim compensation under the Act is in addition to the right to claim interest under the Act.