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Late Payment of debts

Published Monday, December 17, 2018

This note provides a history of the UK's legislation and other initiatives on late payment of debts.

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The provision of credit by suppliers to customers is an established feature of business transactions and essential for the efficient operation of the economy. However, the provision of goods and services ahead of payment means that the supplier can be vulnerable to payment delays. For this reason, it is important that businesses have sound credit management skills as, otherwise, late payments and, worse still, bad debts will eat into profits. However, where a supplier does everything right to ensure that credit given is not abused, it is still possible for the supplier to find that a payment is received late.

This is not a new problem and successive governments have tried different approaches.  Conservative governments in the 1990s preferred encouragement and ‘naming and shaming’ to the other main alternative of a statutory right to interest on unpaid bills.  The Labour Government of 1997 decided otherwise and introduced legislation – the Late Payment of Commercial Debts (Interest) ACT 1998 - to give companies legal remedies beyond those of the normal commercial courts.  EU legislation followed this approach and extended creditor rights’ further.

It is difficult to prove how effective the Act and subsequent amendments to it have been.  SMEs continue to suffer from late payment the levels of which appear to be linked to the overall economic climate.

Sources for advice for companies affected are given at the end of this Paper.

 

Commons Briefing papers SN06640

Author: Tim Edmonds

Topics: Companies, Small businesses

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