Posted: Thursday, 29 November 2012 @ 15:51
With cash flow problems in a difficult economic landscape, do not forget the Late Payment of Commercial Debts (Interest) Act 1998 which could be a useful tool to persuade prompt payment. If the threat does not work the Act provides for the debtor to pay compensation, which can be substantial.
The Act only applies to commercial debt, and so will not help where the late payer is not a business or public sector organisation. For contracts entered into after 2002, all companies are subject to the law.
If there is no contract credit period for payment, and no convention such as 30 or 60 days has been established, then the default period is 30 days.
If the parties have not agreed a late payment interest charge, which must be a "substantial remedy", it is 8% over the Bank of England base rate. And the other significant remedy is the right to claim compensation to cover the costs of recovery, £40 if you are owed up to £999.99, £70 if you are owed between £1000 and £9999.99, and £100 if you are owed £10000 or over. This applies per invoice, so for example if you have 4 invoices of £700 each outstanding, 3 invoices of £2000, and 5 of £15K, the total compensation will be £870 on top of any interest.
Another example: if you are owed £10000 on one invoice, and the date of payment under the contact was 1 March 2012, the daily rate will be £2.3288 based on a rate of 8.5%, so at 29 November 2012 you will be owed £638.09 late payment interest, and can claim an additional £100 compensation, so £738.09 in all.
If the customer refuses to pay you can take them to court and claim the interest and compensation, as well as court costs. Even if you have been paid, but paid late, you can still use the law to recover the late payment interest and the compensation.
I would advise that you include details of the right to claim late payment in your correspondence with the debtor, and in any chasing telephone calls, as this might encourage them to pay up. Tell them how much the interest and compensation will be. Use it as a bargaining chip to get prompt payment.
For advice on late payment of business contracts and dispute management contact:
Business and Litigation Solicitor
Tel: 0845 003 5639
Blog by Nigel Musgrove
Nigel has been providing dispute resolution advice as a solicitor for over 35 years. As well as advising SMEs and business owners on disputes he also offers a specialist licensing law service. View profile
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