The interest and compensation are payable by law. It is up to the supplier to decide whether or not to enforce this right. It is good business practice to agree payment terms "up-front", preferably in writing. You could also agree interest and compensation provision or alternatively indicate that you will rely on the statutory rights by adding to your invoice "We understand and will exercise our statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to agreed credit terms."

If the purchaser pays late, then the supplier should make a written demand for the interest, compensation and from 16th March 2013 onwards, any additional recovery costs.

Do I have to claim immediately?

There is no doubt that the older the debt the less likely it will be paid; however a claim for interest against a late payment does not need to be made straightaway. A supplier has six years in England, Wales and Northern Ireland, and five years in Scotland, in which to make the claim (businesses not based in England or Wales should read Jurisdiction). Receivers or liquidators of a business may pursue its purchasers for interest on late payment going back over this period. Businesses may also claim interest after they have stopped supplying a purchaser. Purchasers who wish to avoid future claims for interest should pay their bills on time.

The six-year period is derived from case law and the Limitation Act 1980.
This creates a reasonable expectation that it would be possible to pursue and claim statutory interest for late payment up to 6 years (5 years in Scotland) retrospectively, or back to the time when the appropriate legislation came into force, whichever is the shorter of the two periods.

Can I charge retrospectively on my existing debtors' list?

Yes. It is possible to claim statutory interest for late payment up to 6 years in the past (5 years in Scotland).

Can my right to interest or compensation for debt recovery costs be sold or transferred to another party such as factors or collection agencies?

Yes. If any part of the debt - i.e. the interest or the principal or both - is assigned to a third party, the original supplier should inform the purchaser in writing, saying to whom the debt has been assigned. The third party, regardless of its size, can then pursue the debtor through the courts for the interest etc.

Sometimes a supplier sells a debt without notifying the debtor. When this happens, the transfer is effective as far as the original supplier and the third party are concerned. However, as far as the debtor is concerned, the debt is still owed to the original supplier, and it is only the original supplier who can pursue the debtor through the courts.

The person entitled to receive the money can employ an agent to collect it for them. For example, a supplier might employ a debt collector to act as its agent in seeking to collect from the debtor, without actually transferring the debt. Similarly, a factor might expect a supplier to act as its agent by continuing to press debtors for payment of debts they have sold to him. Someone who is acting as an agent in this way can calculate and claim interest and invoice for it. Some agencies offer a legal service, enabling them to issue court proceedings.

The supplier can transfer the whole debt (that is, both the principal sum and the interest) or the principal sum alone, or the interest alone. Where only part of the debt has been transferred, the supplier can act as an agent for the third party in respect of the transferred part, and the third party for the supplier for the part that has not been transferred.

Whatever the arrangements between the supplier and third party, the purchaser will never be required to pay interest twice on the same debt.

What happens if a purchaser does not agree with the interest or compensation for debt recovery costs that is charged to them?

A purchaser may not agree with an interest charge (for example, if the goods delivered were faulty and had to be repaired, or they were delivered late). If this happens, the purchaser may negotiate with the supplier to reduce or amend the interest charge.

Sometimes the purchaser may be unable to reach any agreement with the supplier. If this happens, and once all collection methods and negotiations have been exhausted, if the supplier considers that his/her claim for interest and/or compensation for debt recovery costs is a proper one, he/she can go to court or consider the following actions:

• to withhold the supply of further goods or services until interest is paid;
• to refuse to trade on credit terms with the purchaser in the future
• to negotiate with the purchaser to ensure that future invoices are paid on time.

How do I use the courts to collect payment?

If the purchaser does not pay the interest and/or compensation for debt recovery costs, the supplier can pursue the claim through the courts. Taking someone to court can be an effective method of debt recovery, but not always the best option. For example, if your debtor is insolvent, the chances of recovering the debt are minimal and you will have incurred court costs as well. The court procedures are designed to be quick and easy to operate. County Court offices can provide information about court procedures, copies of the forms and help with filling them in. The addresses and telephone numbers of County Courts are listed in the telephone directory under "Courts". Alternatively, you can visit the HM Courts service website and use the search facility.

The supplier should, as a matter of best practice give notice to the purchaser of an intention to issue proceedings to recover the interest and compensation for late payment. If legal proceedings are taken, the purchaser may set out the grounds of his dispute to contest the claim. It will then be for the court to decide the matter.

Going to court should be a last resort. Be sure that you have tried all other solutions, including alternative dispute resolution, if appropriate, the Court Service offers guidance on this.

The court will expect the parties to act reasonably in exchanging information and documents relevant to the claim prior to litigation being launched and generally in trying to avoid the necessity for the start of proceedings.

How will a County Court Judgment affect the purchaser?

If the court makes an award against the purchaser, the purchaser may find that their credit rating is detrimentally affected if they do not make the payment within a month, because this non-payment will be registered at Registry Trust Ltd. (the register of County Court Judgements), and this information will be made available to credit references agencies and any other party searching the registry. This will make obtaining credit in the future much more difficult, as the purchaser will be perceived as a poor payer.

Are there any valid grounds for disputing interest and/or compensation for debt recovery costs claims?

The purchaser may ask the court to be excused from paying part or all of the interest or debt recovery costs, either as a defence to a claim made by the supplier or by applying to the court themselves. This might happen, for example, if the supplier did not give the purchaser enough information about the amount owed, where payment should be sent or by what method it should be made (cash, cheque etc), or was otherwise unreasonable in its conduct. The court has the power to remit interest that is due either partially or wholly.