Late payment interest rate specified in contract

[BHicks]

Hi, my current contract has some explicit provisions in relation to late payment of sums owed. Specifically it mentions that late payment interest can be levied based on Barclays base rate + 2%.

Now, what I'm wondering is this, given that the right to charge late payment interest is specified in legislation (usually Bank of England base + 8% as I understand), can the contract term override/take precedence over this?

This has come about due to my most recent invoice being processed/paid late due (all information was submitted to the agency on time, so it's their problem).

Although it's not mentioned in the contract, I'm presuming that I can also charge the fixed late payment charge in addition to this (in this case the amount is in excess of £10,000 so the charge would be £100 I believe).

Any comments on the above would be very helpful.

[Contreras]

Hi, my current contract has some explicit provisions in relation to late payment of sums owed. Specifically it mentions that late payment interest can be levied based on Barclays base rate + 2%.

Now, what I'm wondering is this, given that the right to charge late payment interest is specified in legislation (usually Bank of England base + 8% as I understand), can the contract term override/take precedence over this?

This has come about due to my most recent invoice being processed/paid late due (all information was submitted to the agency on time, so it's their problem).

Although it's not mentioned in the contract, I'm presuming that I can also charge the fixed late payment charge in addition to this (in this case the amount is in excess of £10,000 so the charge would be £100 I believe).

Any comments on the above would be very helpful.

As far as I know the statutory interest rates only apply if late payment terms haven't already been agreed. In the same way 30 day terms apply unless otherwise agreed.

If you don't like it then negotiate for something else, like shorter payment terms. Or increase your rate but offer a discount for early payment.

With agencies I'd rather go for a shorter terms, whereas direct to client you often have a good idea of pending cash flow problems.

[Wanderer]

Hi, my current contract has some explicit provisions in relation to late payment of sums owed. Specifically it mentions that late payment interest can be levied based on Barclays base rate + 2%.

Now, what I'm wondering is this, given that the right to charge late payment interest is specified in legislation (usually Bank of England base + 8% as I understand), can the contract term override/take precedence over this?

Yes, contractual terms can take precedence over the statutory rights but only if it is a substantial remedy. See the Late Payment of Commercial Debts (Interest) Act 1998 which says:

Any contract terms are void to the extent that they purport to—
(a)confer a contractual right to interest that is not a substantial remedy for late payment of the debt

The dictionary meaning of the word substantial is of ample or considerable amount, quantity, size, etc. I don't think any reasonable person could argue that an amount which is less than required by law could ever meet this definition.

The battle is half won in that they recognise that interest and penalties are payable. I would just invoice them for the full amount of statutory penalties and interest and then point them to that piece of legislation if they want to argue it.

[Safe Collections]

Hi, my current contract has some explicit provisions in relation to late payment of sums owed. Specifically it mentions that late payment interest can be levied based on Barclays base rate + 2%.

Now, what I'm wondering is this, given that the right to charge late payment interest is specified in legislation (usually Bank of England base + 8% as I understand), can the contract term override/take precedence over this?

This has come about due to my most recent invoice being processed/paid late due (all information was submitted to the agency on time, so it's their problem).

Although it's not mentioned in the contract, I'm presuming that I can also charge the fixed late payment charge in addition to this (in this case the amount is in excess of £10,000 so the charge would be £100 I believe).

Any comments on the above would be very helpful.

Our current understanding of the law is such that you can agree interest at a different rate to the legislation and any agreement would take precedent over the statutory 8% above BoE rate. But the clause should be a "substantial remedy" to late payment. Is 2% above Barclays base a substantial remedy? No idea and you'd likely have to test it in court.

As for the costs technically you can't add them, as the legislation states these can only be added "once statutory interest begins to run ..." (section 5A(1) of the Late Payment Act 1998). No statutory interest = no legal basis for the addition of the charge.

But we wont tell anyone if you do go for it

[TheFaQQer]

Our current understanding of the law is such that you can agree interest at a different rate to the legislation and any agreement would take precedent over the statutory 8% above BoE rate. But the clause should be a "substantial remedy" to late payment. Is 2% above Barclays base a substantial remedy? No idea and you'd likely have to test it in court.

Barclays rate has equalled BoE rate since at least 2007. Currently 0.5% so you can charge 2.5% instead of the statutory 8.5%.

[Wanderer]

Barclays rate has equalled BoE rate since at least 2007. Currently 0.5% so you can charge 2.5% instead of the statutory 8.5%.

I don't think the contractual offer of 2.5% would stand up in court as a "substantial remedy" but of course it will never get to court. They are trying it on hoping that they can wriggle out of their obligations and that at least a few creditors won't bother fighting it so they are quids in.

If I was the creditor then I would ignore the derisory contractual interest rate and simply invoice for the statutory penalty and 8.5% interest.

[BHicks]

I don't think the contractual offer of 2.5% would stand up in court as a "substantial remedy" but of course it will never get to court. They are trying it on hoping that they can wriggle out of their obligations and that at least a few creditors won't bother fighting it so they are quids in.

If I was the creditor then I would ignore the derisory contractual interest rate and simply invoice for the statutory penalty and 8.5% interest.

Thanks all for your comments, the rub in this instance is that the clause specifying the interest rate then goes on to state:

The parties agree that this represents a substantial remedy in the context of the Late Payment of
Commercial Debts (Interest) Act 1998.

Does this make claiming the statutory interest rate suitably unlikely to get anywhere or is it worth a punt?

[TheFaQQer]

Thanks all for your comments, the rub in this instance is that the clause specifying the interest rate then goes on to state:

The parties agree that this represents a substantial remedy in the context of the Late Payment of
Commercial Debts (Interest) Act 1998.

Does this make claiming the statutory interest rate suitably unlikely to get anywhere or is it worth a punt?

You agreed the percentage rate.
You agreed that this was a substantial remedy.

You won't get anywhere now arguing that that isn't the case.

[Wanderer]

You agreed the percentage rate. You agreed that this was a substantial remedy. You won't get anywhere now arguing that that isn't the case.

Not just you specifically, but why do so many people here think we need to just bend over and get shafted? Do people here have no balls at all?

The parties agree that this represents a substantial remedy in the context of the Late Payment of
Commercial Debts (Interest) Act 1998.

Does this make claiming the statutory interest rate suitably unlikely to get anywhere or is it worth a punt?

You cannot simply sign away statutory rights like this. The government foresaw that large companies would bully small ones into accepting terms like this so they legislated in such a way that they couldn't get away with it. As I keep saying to people, stand up to them and they will back down. Invoice for statutory penalties and interest then hand it to a debt collector if they don't pay.

[TheFaQQer]

Not just you specifically, but why do so many people here think we need to just bend over and get shafted? Do people here have no balls at all?

There's a big difference between having the "balls" to do something, and signing a contract and then arguing that you didn't mean it / understand it / it doesn't apply.

This one is even more clear cut than most - unless the OP tried to negotiate it out of there and failed, then to turn round now and say that you don't want it to apply is taking the piss.