Tackling late payment

The measure was part of a Government campaign to change Britain's late payment culture, which leads eight out of ten companies habitually to pay their bills late.

Small businesses can be forced to borrow money to keep going while awaiting payment, and some even go bust.

The legislation was extended in 2002 to provide more benefits to small business and allow large businesses and public sector bodies to also use the legislation. The law applies to England and Wales only. Businesses in Northern Ireland and Scotland should seek advice there.

Who can charge interest and when?

The legislation was introduced on 1 November, 1998 and this is the earliest date that a small company can charge large companies and public sector bodies interest at 8% over base rate on overdue business debts.

From 1 November, 2000, in addition to the above, small businesses can charge other small businesses interest at 8% over base rate. It is important to remember to use the base rate in force at the end of the day on which the contract says payment is to be made.

A small company is defined as one with 50 employees or fewer; big companies are those with 51 and over, a public sector body is any Government department, agency, non-departmental public body and local or public authority.

Further action

Ultimately you could pursue your non-payer through the courts (including the Small Claims Courts for amounts up to £5,000) though it's better to chase it up before it gets that far.

The Act also allows you to separate the interest from the principal debt so you can pursue the interest alone even if the big company pays the initial bill. You can also assign the interest to a third party such as a factory.

You may also find the website for the Court Service Money Claim Online useful.

 By Martin Huckle