Getting paid on time can be a constant battle for businesses, large and small. It’s an all too common story and can cripple a small business.
But what can you do about it? New Government legislation came into force in April with a new ‘Duty to Report’ clause meaning larger companies have to report bi-annually how they pay small businesses, including the average time they take to pay suppliers.
The waiting game
So you’ve provided your services, issued your invoice and the payment date has passed but you haven’t received any money. What next?
As soon as another business is late in paying for goods and services then a supplier can claim interest and debt recovery costs on the amount payable.
Even if the suppliers invoice does not stipulate payment terms, the law says that a payment is late after thirty days. This is from the date that the customer receives the invoice or from the date that you deliver the goods or provide the service (if this is later).
This applies both to public authorities and to business transactions. Longer periods for payment can be agreed but they must be fair to both parties.
The interest you can charge if another business is late paying for goods or a service is calculated at 8% plus the Bank of England base rate. The Bank of England base rate is currently 0.25%.
There is a ‘reference rate’ that is fixed for every six months. Currently, for the purpose of calculating interest, the base rate will be deemed to be 0.25% until 30 June 2017 irrespective of whether this rate is increased or decreased in the intervening period. Whatever the rate is on 30 June 2017 will then be the reference rate between 1 July 2017 and 31 December 2017, on which date it will be reviewed again.
There must be a business to business transaction. You cannot claim statutory interest if there is a different rate of interest in a contract.
What to do next
Communication with late payers is key, and we’d recommend this 3-step method: –
State agreed payment dates on all invoices and your intention to exercise the right to charge interest, penalties and reasonable costs on late payments.
If the invoice is not paid by the agreed date, inform customers of the interest, penalties and costs that they are now accruing.
Once the payment has been received, issue a bill to the payer informing them of how the interest was calculated and how much was paid.
This communication is an effective tool for ensuring timely payment with the minimum of friction between supplier and customer, and no undue surprises for the customer.
Claiming interest, compensation and costs
As a supplier, there is no obligation to send a new invoice for the interest that has accrued but it is sometimes a good idea to do so.
However, interest does increase on a daily basis so this could become a repetitive task. All calculations should be that of simple interest and not compound interest.
If you wish to claim interest, compensation or costs, it will be useful to tell your customer: –
How much is due for interest, compensation and costs
What it is owed for, for example by attaching the invoice or invoices that have not yet been paid
How payment should be made, including to whom, by what date, to what address and by what method.
You can also charge a business a fixed sum for the cost of recovering a late commercial payment on top of claiming interest from it.
The amount you can charge depends on the amount of debt. The sum allowed ranges from £40.00 to £100.00. These amounts are set by late payment legislation.
If you are a supplier, you can also claim for reasonable costs in recovering debt.
Thinking of making a claim or want to know about your options when dealing with a late repayment? Contact a member of our expert Commercial Disputes team.
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