Late payment interest - any thoughts?

[teddyt]

I received an invoice from a local builder recently that said interest would be charged for late payment. My research tells me this isn't legally binding. Just wondered if anyone had any thoughts on this?

At the bottom of the invoice it says:

PLEASE NOTE: We will exercise our statutory right to claim interest and compensation charges for debt recovery costs under the LATE PAYMENT OF COMMERCIAL DEBTS (Interest) ACT 1998, as amended and supplemented by the LATE PAYMENT OF COMMERCIAL DEBTS REGULATIONS 2002 if we are not paid according to agreed credit terms.

The law says 'this Act applies to a contract for the supply of goods or services where the purchaser and the supplier are each acting in the course of a business'.

http://www.legislation.gov.uk/ukpga/1998/20/section/2

The phrase 'acting in the course of a business' I gather means that the business can charge other businesses or public sector customers interest - not individuals.

See here:

http://www.lawdonut.co.uk/law/contracts-disputes/debt-recovery/interest-on-late-payments

This site says: 'Every business has a statutory right to charge late-paying business or public sector customers interest. The right does not apply to sales to consumers.'

And as payontime.co.uk says: 'the legislation [the commercial debts interest act] only applies to business to business transactions'

http://payontime.co.uk/common-misconceptions-about-the-late-payment-legislation

Is the builder misunderstanding the law?

[Seabag]

Erm...

Are you actually intending on paying them 'late' then ?

[teddyt]

Of course not. The work was done. The bill will be paid on time. But both parties should act in accordance with the law. I'm not familiar with commercial laws and was just wondering if the clause on the invoice was technically allowed.

[peckham_ryu]

IMO it's acceptable for the builder to have this as a standard note in invoices.

The note itself achieves nothing: it simply highlights the business' intention to make use of any statutory rights available. The builder probably provides some services to businesses, and may hope this note will encourage prompt payment. As you have pointed out, the statutory rights available under the named Acts when performing services for consumers are ? none. Technically, the note itself does not claim otherwise.

[Salsaboy]

When I quote for a large job, I make clear the payment terms on the quote including the fact that I will charge late payment fees, interest and any debt recovery fees to the customer. If they then accept the quote those terms then become part of the contract and so are binding.