What is the Late Payment of Commercial Debts Act?

Its full name is the Late Payment of Commercial Debts (Interest) Act 1998. It covers contracts between businesses for goods or services, and a subcontract between two firms is one of them. It gives you three things when your main contractor pays late. First, statutory interest. Section 1 makes a late payment carry simple interest. The rate is 8% a year above the Bank of England base rate, set under article 4 of the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002. The base rate used is the one in force on 31 December or 30 June, whichever came just before the payment was due. Interest runs from the day after the payment was due, which for a subcontract is usually the day after the final date for payment. Second, a fixed sum for each late payment under section 5A: £40, £70 or £100, depending on its size. Third, your reasonable costs of recovering the payment, where they are more than that fixed sum. There is one big exception. If your subcontract has its own remedy for late payment, such as its own interest rate, and that remedy is substantial, statutory interest does not apply. The fixed sum then falls away too, because it only comes with statutory interest. A remedy that is not substantial cannot shut the Act out. Whether your subcontract's clause is substantial is a question for your solicitor. So read your subcontract's interest clause first, then add the interest to every late payment you chase.