12 April, 2019
British business is continuing to suffer from a damaging late payment culture. Recent research shows that small businesses in the UK are facing a collective bill of £6.7bn per annum due to late payments by other companies, up from £2.6bn in 2017.
The cyclical nature of late payment continues to cause widespread damage to businesses. This comes as a report has revealed that 17% of small business owners are foregoing their wages in order to keep business ticking and employees paid, together with a staggering 72% of SMEs spending three days a month chasing debts.
So, if you choose to pursue recovery of your debt, will it cost you even further?
There are, of course, costs involved in the debt recovery process. However, statutory interest, compensation and reasonable costs can be added to the debt, significantly contributing to any costs incurred on your behalf. Please see below for a further explanation of these three vital additions.
1. Statutory Interest
The Late Payment of Commercial Debts (Interest) Act 1998 provides that interest at a rate of 8% over the Bank of England's Base Rate can be charged upon outstanding debts. Interest accrued can be added to the debt in a lump sum, together with a daily rate accruing until payment.
This is, however, only in the absence of any contractual interest rates.
2. Statutory Compensation (Fixed Sum)
Section 5A of the Late Payment of Commercial Debts (Interest) Act 1998 details your entitlement to charge a fixed sum in addition to the interest on the debt. The amount is fixed according to the size of the overdue invoice, as outlined below:
3. 'Reasonable Costs'
You as the creditor also have an implied contractual right to claim the reasonable costs of recovering the debt, less the fixed sum outlined above.
As to the definition of 'reasonable costs', the Late Payments Directive 2011 provides examples of the costs that can be recovered. Recital 20 of the Directive states that "such costs should include, in particular, those incurred by creditors in instructing a lawyer or employing a debt collection agency".
If you require any further detail on the above, or would like Forbes Collect to pursue your business to business debt, please get in touch on 0333 207 1130.