The Late Payment of Commercial Debt (Interest) Act 1998 (the “Act”) allows companies owed money to claim interest on the late payment of an invoice. Interest is charged at eight per cent above the base rate, making the rate advantageous for creditors and punitive for debtors.

In the recent case of Rutland Plant Hire Limited v The Secretary of State for Environment, Food and Royal Affairs (the “Rutland Case”) the court found that debtors cannot escape the punishing rate of interest because of invoicing errors by a creditor.

Rutland Plant Hire Limited sent incorrectly calculated invoices to the Secretary of State for Environment Food and Rural Affairs (DEFRA). DEFRA therefore refused to pay eight per cent interest on the invoices on the basis that the errors rendered the Act inapplicable.

The Court disagreed with the Secretary of State and ruled that there was no requirement that invoices had to be perfect before interest could apply. The Court was unwilling to make a ruling that would lead to debtors trying to take advantage of minor errors in creditors’ invoices.

The Rutland case is a case from which creditors within the construction plant industry should take heart.

The Late Payment of Commercial Debt (Interest) Act 1998

  • Interest rate is eight per cent above base rate.
  • Interest is charged on the gross amount (including any VAT).
  • Compensation can be claimed on late payments between £40 to £100.