How Can I Maximize The Benefits Of The Late Payment Legislation?
The Late Payment Of Commercial Debts (Interest) Act 1998 had two purposes. Firstly, to compensate creditors for delayed payments. Secondly, to deter late payment. It is generally recognised that it has failed to change the payment delays culture but there’s no reason why you can’t use it to change the culture of your customers.
However there are a few things you should do to maximise the effectiveness of the legislation and therefore reduce your costs.
Know When You Can Claim
You can claim Late Payment Interest and Compensation if:
- You have supplied goods and/or services
- Your buyer bought for business purposes
- The contract is not a consumer credit agreement
- The contract does not contain a provision for interest on overdue invoices (or any other substantial remedy for non payment)
Make Sure You Calculate Interest Correctly
You can claim interest at 8% over Bank of England Base Rate (at the previous 31st December or 30th June).You can claim interest on invoices that were not paid within the credit period but have since been paid. Interest can be claimed for the period starting with the date the invoice should have been paid and ending with the date it was actually paid. You have up to 6 years to claim the interest.
Don’t Forget To Include Compensation
You can claim compensation for every invoice that was not paid within the credit period. You can claim compensation even if the invoice has now been paid. You have up to 6 years to claim. The compensation you can claim is:-
|Up to £999.99||£40|
|£1000 – £9,999.99||£70|
You can claim compensation whatever your collection costs are. However, if your reasonable costs of recovering the debt come to more than the compensation, you can claim this as well. This can include the cost to your business of your credit control procedures as well as any costs you may incur from instructing Debt Collection Agencies or lawyers.
Tell Your Customers You Will Be Claiming
You do not need to take any formal steps to claim either interest or compensation. However, you may want to let your customers know you intend to rely on the legislation. This may encourage them to pay on time! You could put statements to this effect on your invoices, statements and in your terms of business.
You have 6 years to claim compensation and interest. If you wait e.g. for several years before complaining about late payers and making a claim, you may be met by the argument that you have impliedly agreed to accept payment delays. To avoid this, you could include wording on your invoices and statements to the effect that overdue invoices are not acceptable and that you will exercise you rights under the legislation. Where you have an on-going relationship with a customer who always pays late, it would be sensible to write every at least every 12 – 18 months to draw attention to this and ask them to pay within the credit period.
Changing Your Terms Of Business
You are not entitled to late payment interest and compensation if your terms of business already provide for interest on overdue invoices. You may want to change your terms of business and rely on the Late Payment legislation. If you do, make sure your customers know. You should:
- update all documents on which your Terms and Conditions appear.
- circulate your customers with the revised Terms and Conditions.
- advise your customers when the revised Terms and Conditions will come into effect.
- make sure you can prove each customer has been told about the change in your Terms and Conditions.
N.B. Existing contracts will continue to be governed by the Terms and Conditions which applied at the time they were entered into.