UK: Better Late Than Never? The Late Payment Of Commercial Debts (Interest) Act 1998 Revisited

Last Updated: 3 August 2001
Article by Scott Johnston

In November 1998 the Late Payment of Commercial Debts (Interest) Act 1998 was welcomed by many as another blow to the widely perceived late payment culture of the Construction Industry. The Act introduced a statutory right to interest in the event of late payment of debts due to businesses with less than fifty employees (defined by the Act as small businesses) by businesses with over fifty employees, or public authorities. In November 2000 the Act was extended to debts due to small businesses by businesses of any size, and public authorities. But has the Act really made a difference?

Recap of the Essentials of the Act

  1. The Act applies to debts of any size incurred under contracts for the supply of goods and services where the "purchaser" and "supplier" are acting in the course of a business. Typical construction contracts, professional appointments and contracts for the supply of materials are therefore covered by the Act. Debts assigned to factoring agencies are also held to be qualifying debts under the Act.
  2. Qualifying contracts must provide a "substantial remedy" for the late payment of debts. While parties can agree what this remedy should be, it must satisfy the "fair and reasonable" test set out in the Act before the statutory provisions can be displaced. Factors such as the relative bargaining positions of the parties will be taken into account in evaluating whether a term can be regarded as "a substantial remedy". Attempts to circumvent the Act by agreeing exceptionally low rates of interest to apply to late payments or protracted credit periods could be challenged.
  3. If a substantial remedy for the late payment of debts is not provided in a qualifying contract, the Act will apply and interest will run on late payments at the statutory rate from the "relevant day" defined by the Act.
  4. The statutory rate of interest is 8% above the Bank of England Base Rate which prevails on the date the debt becomes overdue.

The Impact Of The Act So Far

A recent survey carried out for found that only 15% of the small businesses surveyed had used the Act to claim interest on debts. This finding is perhaps not surprising. The understandable reality is that many small businesses will often choose to ignore an entitlement to interest provided by the Act for the sake of commercial harmony with their customers.

The present level of awareness among small businesses as to rights afforded by the Act and when it can be used is questionable. Many businesses simply may not be aware of their rights under the Act and when these can be enforced. A basic knowledge of the Act could be potent – for example, reference to the Act and the statutory rate of interest in standard terms of contract or invoices may be enough to discourage the late payments of debt. The best starting point for further information on the Act is still the DTI's user guide.

It would be wrong to assume that the Act has not had some impact. The introduction in 1998 of interest based remedies for late payment to many standard forms of contract unquestionably granted one of Sir Michael Latham's wishes, but was also at least partly driven by the imminent arrival of a statutory right to interest. The JCT Standard Forms of Building Contract, for example, provide for interest to be paid at the rate of 5% above the Bank of England Base Rate in the event of late payment. Such provisions are now commonly relied upon, not least in claims made via adjudications.

Some Unanswered Questions

The question as to whether interest provisions in some standard forms truly displace the statutory rights to interest – whether they are "substantial remedies" for the late payment of debts – remains one of the unanswered issues arising from the Act (at least by the courts). For example, does the interest rate of 2% above Base Rate set out in ICE 7th satisfy this test when the Act specifies a rate of 8% above the Bank of England Base Rate? Would the answer to this depend on the financial position of the creditor, and would it differ from case to case? Would the Act's interest rate be regarded as penal? There has, so far at least, been no reported authority on these questions. This may change if more parties come to rely upon the Act in making a claim for interest.

A Sleeping Giant?

Virtually all contracts in the construction supply chain will eventually be subject to the Act. Consequently, if standard form contracts incorporating interest provisions are not put in place, the Act may have a role to play. Bespoke conditions of sub-contract used by some main contractors do not provide a right to interest on late payments. If a sub-contractor has over 50 employees it cannot currently rely on the Act to claim interest. If, however, such conditions are incorporated into contracts entered into after (at the latest) November 2002, the Act will provide a right to interest on late payments.

As the number of contracts affected by the Act increases, so too will the size of debts and the amount of interest payable, as well as the number of businesses entitled to statutory interest. Larger enterprises may be less wary than small businesses of irritating those they have contracted with, and hence the number of businesses using the Act could rise rapidly.

If a relationship does break down and the party seeking payment wishes to maximise a claim, interest accrued between final and actual dates of payment during the course of a contract may be "swept up" in one global claim. Such an approach may come as a nasty surprise for habitual late payers at the end of a contract. The sensible course of action for those likely to be on the receiving end of such claims will be to formulate their own "substantial remedies" for late payment with interest, perhaps, at a lower rate than the statutory rate.

Liquidators may also review a company's dealings over a period of time with the aim of collecting outstanding, but unclaimed, interest on debts which have persistently been paid late.

The European Dimension

European Parliament Directive 2000/35/EC requires member states to introduce a right to claim interest in the event of late payment. The Act provides this right but not, currently, for all businesses. As the Directive is due to be implemented before 8 August 2002 the final planned extension of the Act (by 1 November 2002) may be brought forward.

The Act complies with most of the Directive's requirements but does not provide a right for a creditor to claim "reasonable compensation" from a debtor for "all relevant recovery costs" incurred as a result of late payment. The Directive insists on this. An amendment to the Act or secondary legislation may be needed to ensure harmony with the Directive – a fixed scale for costs based on the size or age of the debts is among the options being considered to bring about compliance. Such a change may make the pursuit of interest and late payments more attractive to creditors.

Further details on the Directive are available from the Small Business Services Website. A commentary on the act is available in Debts and Interest in the Construction Industry: a Guide to the Late Payment of Commercial Debts (Interest) Act 1998 [Johnston; Thomas Telford 1999].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.