Regulations of Late Payment of Commercial Debt
According to BACS, one of the biggest problems companies face is the payment of invoices, with UK-based SMEs collectively facing £24.4 billion in late payments and bad commercial debts in 2019. This figure has dramatically increased from £10 billion in 2018, showing how the issue of late payments is spiralling out of control. And, with Covid-19 making many companies’ debt collection processes even harder, there’s no surprise that 62% of all small businesses are at risk of folding.
It can be challenging and stressful trying to manage late repayments, with a lack of communication, understanding or care from clients. But don’t worry, the law is on your side in situations like these. Today we will help you understand your legal right regarding the late payment of invoices so that you can make an informed decision on what you need to do to be reimbursed of your debts. With a greater understanding of the law and the outstanding support of Athena Debt Recovery, the stress and worry that comes with late repayments should be an issue of the past.
Late Payment Law
Law regarding the late payment of invoices comes under The Late Payment of Commercial Debts (Interest) Act 1998. This act was created to help tackle the issue of late payments and to compensate creditors when commercial customers did not pay on time.
The act states that a payment is late once 30 days have passed after the consumer has received the product or services, or received the relevant invoice. These payment terms can be longer depending on the terms and conditions of your contract. However, the act also states that if the terms are longer than 60 days, it must be fair to both businesses.
The Late Payment of Commercial Debts (Interest) Act 1998 also gives creditors the legal right to charge interest on any debt once the agreed payment period has passed. You can charge ‘statutory interest’ at 8% above the Bank of England’s base rate. However, if your contract terms state a different rate of interest, then you cannot claim statutory interest.
Charging Compensation and Reasonable Costs
As well as statutory interest, creditors are also entitled to add a fixed compensation sum and reasonable debt recovery costs to the invoice.
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
Suppose the late payment invoice plus the debt recovery costs total more than these amounts. In that case, you are entitled to a more significant figure which includes your credit control process and external collection costs. Get in contact with Athena Debt Recovery for a personalised and knowledgeable conversation about what we can do to support your debt recovery needs.
Taking Legal Action
Sometimes, clients won’t pay their debts even when interest, compensation and debt recovery costs are added to their invoice. If you are at this point, then it’s time to look into taking legal action. By using a solicitor-led debt recovery service, like Athena Debt Recovery, you are ensuring your business has the best chance at reimbursement. For most cases, debts are recovered in the pre-litigation phase, avoiding the courts and the risk of publicity.
However, here at Athena Debt Recovery, we pride ourselves on being knowledgeable and experienced in all phases of debt recovery. We are a cost-effective and efficient company which serves to recover your debt as smoothly as possible. By understanding and abiding by current debt recovery legislation, we promise our clients a hassle-free solution to their existing debt issues.
Through our strict training in law and finance, we have one of the highest success rates in the North West. Our dedication and attention to detail mean we can identify the most effective, high-value solution that always adheres to the Late Payment of Commercial Debt (Interest) Act where possible.
If you want to reduce the risk of losing out on customs and clients and prevent debt issues before they occur, then get in contact with us today. Not only do we excel in debt recovery, but we can help implement simple credit control procedures to minimise bad debt problems before they occur. To speak to our debt collection team about recovering money for your business, contact Iain Bould on firstname.lastname@example.org or Tracy Popperwell on email@example.com.