Forbes Collect Article
31 August, 2017
The late payment of invoices is one of the biggest problems businesses face according to BACS. In a 2017 study, the bank automated clearance scheme found that SMEs were collectively facing £14.2bn in late payments and commercial bad debts. While late payments from a customer can be difficult to control, the law is on your side. Here are your legal rights regarding the late payment of invoices.
What the law says about late payment of invoices
Legislation regarding the late payment of invoices comes under the Late Payment of Commercial Debts (Interest) Act 1998. This act was set up to help tackle the problem of tardy payments and to compensate creditors when commercial customers did not pay up on time.
Under this act, the law states that payment is late once 30 days have elapsed after the customer has received a product/service or received the relevant invoice. You can, of course, agree longer payment terms with your customer under your own terms and conditions of payment. The Late Payment of Commercial Debts (Interest) Act 1998 also states that, if the terms are longer than 60 days it must be fair to both businesses.
Charging interest on late paying invoices
The Late Payment of Commercial Debts (Interest) Act 1998 gives creditors the legal right to charge interest on debt, once the agreed payment period has elapsed. Under the current rules, you can charge 'statutory interest' at 8% above the Bank of England base rate. However, if you have a different rate of interest in your contract terms you cannot claim statutory interest.
Charging compensation or reasonable costs on late paying invoices
In addition to the statutory interest, creditors are entitled to add on to the debt either a fixed compensation sum or their reasonable debt recovery costs of recovering late commercial debt.
The fixed compensation per invoice currently stands at:
If your reasonable debt recovery costs equate to more than these sums, then you are entitled to that greater figure, to include your credit control process and external collection costs. However, that could be open to greater challenge due to the difficulties in quantifying the cost.
These rights and what you can charge are laid out in the Late Payment of Commercial Debts (Interest) Act 1998.
Taking legal action
If none of the above prompts your customer to pay then you can take legal action. One way of doing this is by using a solicitor led debt recovery service. In most cases, debts are recovered in the pre-litigation phase. Forbes Collect use a cost effective and efficient system to recover your debts as quickly as possible.
To speak to our debt collection team about debt recovery for your business contact Forbes Collect on 0800 689 4176 or email us on email@example.com.