My Website Limited – Late Payment Charges
Our Philosophy and the Law
A contract is a legally enforceable agreement – usually with one side agreeing to pay money and the other side agreeing to provide goods and services.
We believe that a contract should be clear and agreed and adhered to.
If we owe money we pay it. If we are owed money we expect it to be paid. As a limited company we have to act in the best interests of the shareholders, and that is almost always ensuring we collect any money that is due whatever it is for. There are exceptions where good will is more valuable for ongoing business, but they are exceptional.
What are late payment penalties?
When someone buys goods or services a contract is formed. A contract is just an agreement between the two parties. This contract will normally involve a supplier selling goods or services in exchange for money. The contract may be formal and in writing and signed, or implied, or according to published terms which are implicitly agreed. One aspect of the terms is when and how to make the payment. The seller may give the buyer time to pay (credit terms). If the buyer does not make the payment within these terms then they are late. Paying late is breaking the contract. Late payment penalties are simply a pre-agreed penalty that is due if the terms are broken by paying late.
Contract law means that if you break a contract with someone then you are liable to pay them penalties which are their costs for your breach. Paying late is a breach of contract. All commercial contracts have penalty clauses by law, and the statutory levels provide a fixed fee and interest. The whole idea of statutory penalty clauses is to get people to pay on time. It is meant as a deterrent against paying late and to compensate for it as well.
It is important for commercial customers to realize that they cannot escape penalty clauses. The law has been worded carefully to avoid this. If this was not the case, and there was any way for a supplier to exclude penalties, then it would be a standard condition of all purchase orders anyone ever sends and the late payment act would be useless.
What are the statutory penalties?
A fixed charge of £40, £70 or £100 depending on the size of the debt (under £1,000, under £10,000, and higher). PLUS Interest at 8% over base rate (a level set each 6 months for simplicity).
Late Payment of Commercial Debts (Interest) Act 1998Late Payment of Commercial Debts Regulations 2002 (SI 2002 No 1674)
Additional fixed penalty charge £40, £70 or £100 as well as the 8% over base rate of interest As from 7th Aug 2002 applicable to all commercial contracts
Because it is the law there is no need to state penalties in the contract or tell people penalties apply. However, we make a point of making it very clear to our customers.
Penalties may be pursued up to 6 years
Charging penalties could lose good will. But it is worth bearing in mind:-Penalties only apply to customers that have broken their contract and not paid on time anyway.
Penalties are part of every commercial contract. Anyone paying suppliers late is taking a gamble.
It is possible to lose customers because of late payment penalties, but this is more than made up by reduced bad debt, better cash flow, and penalties collected. For more information please see: