by scowan
30. September 2010 20:50
Once again we are focusing on some of the commonly asked questions regarding late payment charges. For Scottish businesses this can be a key tool in avoiding bad debt.
Can My Purchaser Avoid Paying Interest?
Basically if your purchaser says the Late Payment legislation does not apply the court will declare this to be void.
If this happens you will still be entitled to take advantage of all the remedies the Act provides. This is because the intention behind the legislation will be avoided if purchasers were to say the late payment of interest legislation did not apply at all, or that some sort of lesser remedy should be substituted. If allowed this would completely circumvent the legislation.
Can Your Purchaser Offer An Alternative To Interest Under The Act?
It is not unlawful for your purchaser to provide their own remedy if payment is late but if they do it must be "substantial". If a court finds the remedy not to be "substantial" then it will be declared void and the late payment legislation will apply.
The contractual term will be void if it:
• fails to provide a contractual right to interest which is not a substantial remedy for late payment of the debt; or
• varies the right to statutory interest which fails to provide for a substantial remedy for late payment of the debt.
How will the court decide if the purchaser's remedy is substantial?
Basically the court will want to ensure the seller has, in all the circumstances, a substantial remedy in the event of a purchaser failing to settle their account on time. The following are non-exhaustive examples which will be deemed unfair. In these examples the late payment legislation will apply:
• Credit periods which avoid the possibility of late payment.
• Credit periods which greatly differ from established practice in a particular industry.
• Variations in credit periods offered to other suppliers by the same purchaser.
• Interest rates lower than the statutory rate the effect of which means the supplier does not receive from the purchaser interest for a sufficient amount to over the theoretical cost of borrowing the cash.
How Can Representative Bodies Help?
If you are a small to medium enterprise a representative body can question whether a purchaser's terms give the effect of undermining the purposes of the late payment legislation.
What they can do is take the issue before the court on your behalf. Indeed in certain circumstances they can do this on your behalf without your even having to make the request. For this to happen the representative body will have to demonstrate a relevant link with you such as acting for similar organisations such as yours; for a particular industry sector or geographical area.