We’ve all had the issue of expecting a payment from a customer and it doesn’t arrive, even when the customer has promised to pay. The problem is what are your rights and how to enforce them.
If you’ve issued a contract, hopefully it specifies payment terms and what additional charges, if any, can be applied.
Sometimes a contract is formed by your accepting an order from your customer which may include a list of terms and conditions, often on the back. It’s probably too late by this point but a good tip is to read the Terms and Conditions, which are often in small print on the back of an order. Bet you didn’t.
Your contract may have been a verbal one. A verbal contract or agreement is perfectly valid in law but the problem is that you might remember what was agreed differently to your customer.
A contract must be fair so, if the Terms and Conditions specify you must wait five years for payment it is unlikely to be classed as fair. However, 30, 60, 90 or even 180 day payment terms are not that uncommon.
The law on Late Payments
Late payment is a problem as old as commerce itself so legislation was passed to clarify what is expected and specifying additional charges which can be made. The Act is, snappily, called “Late Payment of Commercial Debts (Interest) Act 1998”.
It specifies normal payment terms and what interest and charges can be added. In summary, these are:
1. If no payment date has been agreed, the law says the payment is late 30 days after the later of the customer receiving the invoice or the goods or service are provided
2. Once an invoice is late interest can be charged from the date it becomes late. This is known as “statutory interest” and is 8% plus the Bank of England base rate. If a different rate of interest is included in the contract, this is the rate which should be applied. A lower rate of interest can be agreed but not where the customer is a public body. If you need help calculating the interest, give us a call
3. An additional fixed amount can be claimed to cover the cost of recovering a late payment in addition to the interest. This varies depending on the amount of the debt:
a. Up to £999.99 £ 40
b. £1,000 to £9,999.99 £ 70
c. £10,000 or more £100
4. If the matter does go to court then court fees can also be added
Our experience is that customers usually want to keep their suppliers happy. Paying late can be caused for all sorts of reasons. These can range from cashflow problems right through to incompetence in keeping their own records and chasing their own debts; it may be because a customer of theirs has gone broke.
We don’t suggest not pursuing a debt but your first, suggested, course of action is to try to find out why the payment has not been made. If you are dealing with a larger organisation you may need to go higher up the chain than the person you normally deal with to get an answer. Assuming you get some sense out of your customer (and you believe them) you can decide how to act.
You may be able to persuade them to enter into an arrangement to pay, perhaps over a reasonable time scale. It may be that they are waiting for a payment from their customer and can give you evidence of this, in which case it might be in your interest to wait (although you should probably still add the charges as outlined above).
We always recommend putting any agreement made in writing so there is no ambiguity or disagreement later
Ultimately, you can issue legal proceedings on a customer, even to the extent of issuing a Statutory Demand. The problems with any legal action are that there are costs involved and the result will not be quick. Before embarking on legal action, be as sure as you can that you will not be throwing good money after bad. If they haven’t got the money and aren’t likely to get it, why waste more of your precious cash chasing it.
The approach might be different if your customer is an individual rather than a company because an individual might have assets outside the business so could be worth pursuing whereas a company can possibly just become insolvent.
Think carefully before taking action through the court. Speak to a specialist solicitor/debt collection agency first. A threatening letter from a solicitor might be enough to extract some payment.
How we can help
As part of the services we provide, we can help you with credit control. We can help you keep on top of your day to day invoice chasing and highlight late payers. As a part of the credit control process we can do some “nudging” and try to prevent a debt getting to the point of having to chase it.
We don’t do debt collection but work in conjunction with specialists in this field.
If credit control is a problem, or if you are taking on some larger contracts, come along for a completely FREE discussion about the range of accountancy, bookkeeping, tax and general advice services we can help you with. Contact us on (01509) 816150 or by the contact form below.