the supply of goods and services. The Act was brought
into force by stages. However, on 7 August 2002 the final
phase of the implementation was made and the Act now
applies to allbusinesses and public sector bodies.
Application of the Act
The Act applies to contracts for the supply of goods or
services where the purchaser and the supplier are acting
in the course of a business. It does not apply to con-
sumer credit agreements or to any contract that operates
by way of a security, for instance a mortgage, pledge, or
charge.
What is the rate of interest?
Interest is calculated at 8 per cent above the Bank of
England base rate. To simplify matters and avoid an ever
changing rate, interest is calculated at 8 per cent above
the base rate in force on 30 June for interest that starts
to run between 1 July and 31 December or the base rate
in force on 31 December for interest that starts to run
between 1 January and 30 June. Thus where the base rate
is, say, 4 per cent on the applicable date, the late pay-
ment rate will be 12 per cent. From 1 January 2006 it was
12.5 per cent. The Act gives suppliers an entitlement to
simple interest only and not compound interest, i.e.
interest on interest.
From when does interest run?
Interest starts to run from the day after the due date for
payment or, where no such date has been agreed, when
30 days have elapsed from the delivery of the goods or
the carrying out of the services or notice being given
to the purchaser of the amount of the debt, whichever
is the later.
Recovering the costs
In addition to interest, a business can claim reasonable
debt recovery costs.
Where the customer still does not pay
Let us assume that one of Fred’s creditors has obtained
a judgment against him and that he still will not pay.
The judgment itself orders Fred to pay direct to his
creditor. The creditor will therefore know quite quickly
whether he needs to consider further action (called enforce-
ment) to try to get the money.
If Fred has not paid, the creditor can try to get the
money by asking the county court for any of the following:
■a warrant of execution;
■a third-party debt claim (formerly a garnishee order);
or
■a charging order.
The court can, in an appropriate case, make an attach-
ment of earnings order under which an employer deducts
money from wages or salary through the court until the
judgment is paid. This is not available in Fred’s case
because he is self-employed and an earnings order is not
available against Fred’s profits. It is necessary to pay a fee
for any of the above procedures but the amount paid by
the creditor will be added to the money he is already
owed. The fee is not refunded if the enforcement does
not succeed. If Fred has no money or assets (which is
unlikely), it will fail and there is nothing the court can
do by way of enforcement.Warrant of execution
This gives the bailiffs, who work out of the office of the
sheriff of the county, the authority to visit Fred’s home
or business. The bailiff(s) will try either:
■to collect the money owed; or
■to take goods to sell at auction to pay the debt.
It is worth noting that there may be some activity in
this area under the Human Rights Act 1998. Article 1 of
the First Protocol of the Human Rights Convention
deals with property rights and, since the bailiff service
is an emanation of the state, the Convention applies.
Property taken in execution is sold at very cheap prices
at sheriffs’ sales and makes less contribution than it
might in paying off the debtor’s debts. This provides an
imbalance between the rights of the creditor and the
debtor that may lead to cases and changes on the basis of
a breach of the ‘fair balance’ test implicit in the Protocol.Third-party debt claims (formerly
garnishee orders)
If a creditor knows that Fred is owed money by a third
party as where, for example, there is a credit balance
on Fred’s bank account or building society account, the
creditor may wish to divert the payment away from Fred
to himself. This can be done by the creditor applying to
the court for an order for enforcement of a third-party
debt claim. The order is addressed to the bank or buildingPart 2Business organisations