Late Payment Law
Claiming extra for late payment of invoices
It is an unfortunate truth that most businesses are owed considerable amounts of money from customers who do not pay on time and considerably late. Credit control can cost businesses a lot of money and there is an impact on cash flow.
It is often also the case that the business does not wish to be overly hard on the customer for fear of losing the customer. However, if a customer does not pay, it is not a good customer.
Where a customer has not paid and that customer is a commercial entity, then you can charge that business a fixed sum for the cost of recovering a late commercial payment on top of claiming interest from it.
A payment becomes late – if you haven’t already agreed when the money will be paid – after 30 days for public authorities and business transactions, or after either the customer gets the invoice or you deliver the goods to provide the service (if this is later).
The amount you can charge in relation to the fixed sum depends on the amount of debt. For debts of up to £999, the charge is £40; for debts of £1,000 to £9999.99 is £70 and for any debt of £10,000 or more a £100.
You can also charge interest (known as statutory interest) if another business is late paying for goods or services. The rate is 8% plus the Bank of England base rates for business to business transactions. This is a significant interest rate when base rates are so low at present. Interest rates awarded are very low up to the point where you obtain a judgment from the court. A Judge will only allow a judgment rate of between ½ and 2%.
Therefore, using the statutory framework under The Late Payment of Commercial Debt (Interest) Act 1998 to claim a fixed fee and interest means that you are at least partially compensated for the effect any late payment has on your business and cash flow.