Remember: Late Payment Debt Collection Shouldn’t Cost You A Penny

You certainly know that chasing late payments can prove to be an incredibly time consuming and frustrating process. Credit controllers and account receivables work hard to guarantee the business has enough working capital, but with certain debts their options start running out. It is at this stage that a solicitor must be instructed to set the stage for potential legal action – at a price.   

Who Pays For The Legal Costs?

It’s not fair that your business ends up having to pay to chase a customer that is holding on to money that is rightfully yours. If your company has a clause in its terms and conditions that specifies the rate of interest that will be applied if a customer pays late, and makes no reference to the fact you will claim your costs of chasing late payment, it is likely you will be footing the bill for legal and in-house debt recovery costs. However, this can be avoided by amending this clause to utilise the Late Payment of Commercial Debts (Interest) Act 1998 (‘Late Payment Act’) and including a provision that allows you to recover your costs of chasing late payment. 

Ensure you can have COST-FREE debt collection by incorporating these T&C clauses in your contracts and invoices.

How Will This Support Your Business?

The Late Payment Act allows you to claim compensation of between £40 – £100 on each invoice that is paid late. In addition, you can claim interest 8% above the Bank of England base rate. All companies should apply a costs recovery clause in their terms and conditions. Don’t forget that your costs are not limited to the legal fees but also include the in-house expenses and time spent chasing debts prior to instructing a solicitor. Including a provision for reasonable costs will protect your business from losing money when customers don’t pay on time.   

Can Companies Really Achieve A Cost Free Debt Collection Service?

Absolutely. Look at the example below and check how applying the late payment law makes a big difference when recovering debts.  EXAMPLE: Example A illistrates a debt where the client is unable to utilise the Late Payment Law. However, Example B shows the compensation and recoverable costs that could have been recovered if the client were able to utilise the Late Payment Law. 

 Example A  Example B  Difference  
_______________________________________________  __________  __________  
Original Debt (incl. interest 8% above base)  £4,861  £4,861 £0 
Compensation Claimed£0 £180  £180 
Costs Under Contract/Late Payment Act Claimed£0 £150  £150 
CPR Recoverable Fixed  Solicitors/Court Fees £290 £290 £0 
Solicitor Costs Outside Recoverable CPR Fixed Costs– £150 – £150  £0 
______________________________________________  __________  __________  
Total Paid  £5,151    £5,481  £330  

  In the example above, the Late Payment Act enabled the company to recover £330 in excess of what they would have recovered if they weren’t using the Act. This not only enabled them to cover the £150 costs that fell outside the fixed costs recoverable under the Civil Procedure Rules but it also resulted in an additional £180 in Late Payment Compensation to cover the in house credit control costs of the Company.  Sometimes it is true that you may need to avoid straining a relationship with an important customer but, in general not charging these legal costs is a mistake as, by law, it’s money that belongs to your company.   

25 May 2016