Late payment of invoices is one of the biggest problems businesses face according to the Bank Automated Clearance Scheme (“BACS”).
In a 2017 study, BACS found that SMEs were collectively facing £14.2bn in late payments and commercial bad debts.
Late payments from a customer can be difficult to control, the law is on your side.
Your legal rights regarding the late payment of invoices are:
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. Longer payment terms with your customer under your own terms and conditions of payment can be agreed upon.
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 debts, once the agreed payment period has elapsed. Currently, interest under the act runs at 8% above the Bank of England base rate.
Charging compensation and reasonable costs on the late payments of invoices
In addition to the interest, creditors are entitled to the debt a fixed compensation sum and reasonable debt recovery costs of recovering late commercial debt.
The fixed compensation per invoice currently stands at:
- Invoice value less than £1,000: £40
- Invoice value less than £10,000: £70
- Invoice value of £10,000 or more: £100
If the reasonable debt recovery costs are more than the compensation sums, you are entitled to that greater figure, to cover both credit control processes and external collection costs.
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. We use a cost-effective and efficient system to recover debts as quickly as possible.
How Beeston Shenton Can Help
We have a wealth of knowledge and expertise in debt recovery steps to aid your business.
We provide a considered approach to speed up debt recovery collections whilst minimising customer conflict and reducing the risk to your business.
Our service is tailored to match the individual needs of your business and pride ourselves in offering bespoke, cost-effective solutions to your debt recovery needs – from simply chasing late payers to legal proceedings including all county court and insolvency processes.
We are totally dedicated to helping our clients improve cash flow and increase the profitability of their businesses and we use the latest in Debt Recovery software enabling us to process both pre-legal and legal collections promptly and efficiently.
About the author
Iain Bould
Iain Bould is the head of our Commercial Litigation department.
Iain has over 28 years of experience in Commercial Debt Recovery having worked in both Private Practice and Industry and brings a pragmatic and commercial approach to recovering debts. With extensive experience working across all industry sectors, Iain has particular expertise in working with Insolvency Practitioners in advising and recovering outstanding insolvent company ledgers.
If you need any advice or further information please contact Iain at iain.bould@beestonshenton.co.uk
