Cost-Free Debt Recovery Thanks To The Late Payment Act

Take advantage of the new Late Payment of Commercial Debts Regulations 2013 to recover all your legal costs, giving you virtually cost-free debt recovery.

How Come?

Many people have heard of the Late Payment Act, which was introduced in 1998 to encourage businesses to pay their invoices on time. This Act allowed creditors to charge interest at a rate of 8% above base on overdue invoices as well as adding a sum of between £40 – £100 per invoice as compensation for the creditor’s costs of recovery. In 2011 the European Union passed a Late Payment Directive. This required all member states to harmonise their respective late payment legislation to ensure a consistent playing field across the whole of Europe. As a result, in March 2013, the Late Payment of Commercial Debts Regulations 2013 were passed, which updated the original 1998 Act to ensure it was compliant with the 2011 EU Directive.

The Vital Clause

The Regulations contain one clause in particular that is highly significant for creditors. From March 2013 onwards, if a creditor has to chase a debtor for an unpaid invoice they are now allowed to claim their ‘reasonable costs of recovering the debt’ rather than being restricted to a fixed sum of compensation as under the original Act.  Government guidance indicates that this is intended to cover the reasonable costs of using a third party, such as solicitors or agents, to collect the debt.


What does this mean for you? Putting it simply, when you are pursuing an overdue invoice, you are now allowed to include all your reasonable costs of recovering a debt, including any administration or legal fees, to the extent that the fixed amounts of compensation do not cover your costs. It is important to be able to quantify those costs, and using a third party makes this much easier.

The only limitation is that the costs and compensation together must be ‘reasonable’ and the contract terms must not provide another “substantial remedy” for the creditor’s compensation, costs or interest.

Simple To Claim

Here at Lovetts we know that our clients are always looking for ways to reduce their legal costs. That’s why we have updated our software to automatically add reasonable costs of recovery to the debt whenever a claim is issued through CaseManager, our unique online case management system. We have calculated appropriate costs which in most cases will cover all the legal fees and costs of issuing a claim – normally these would have been irrecoverable. Provided your debtor pays in full this means you effectively get free debt recovery!

What Else?

That’s not all. If your terms of business already include a clause allowing you to charge an administration fee from your debtors, then although this means you won’t be allowed to take advantage of the new Late Payment Regulations, we can now update our system to automatically make your own contractual costs part of any claim you issue through CaseManager.


If you’d like to know more about how to claim your costs of recovery, or you are unsure on what your Terms of Business actually allow you to claim and want advice from one of our solicitors, don’t hesitate to give us a ring on 01483 457500. Clients will not be charged for such preliminary advice.

31 October 2013