The Late Payment of Commercial Debts (Interest) Act 1998 enables a party to a commercial contract to charge a statutory rate of interest of 8% over the Bank of England base rate on outstanding payments (unless there is a different rate in the contract). The latest amendments to this statute came into force on 26 February 2018 when the Late Payment of Commercial Debts (Amendment) Regulations 2018 was enacted.
The 2018 regulations, which apply in England, Wales and Northern Ireland, give representative organisations the right to start proceedings to restrain the use of grossly unfair terms relating to payment dates, interest payable or compensation for late payment. The terms apply where a person acting in the course of a business enters (or intends to enter) as purchaser into a contract to which the Late Payment of Commercial Debts (Interest) Act 1998(5) applies. SMEs who might not have had the funds to take action against another party, will now have a way to challenge unfair terms.
It is worth noting that the regulations do not define what amounts to a "grossly unfair" payment term. This is a fairly obvious omission but the government has explained that the definition will be clarified by the judiciary as more disputes arising from unfair payment terms are taken to court.