How to charge for late payment

Ensuring your customers pay their bills on time can be difficult.

Late or non-payment of debts can cause cashflow problems and even force you out of business.

In a bid to encourage prompt payment among UK businesses, the law now deters customers from paying late by allowing you to charge debtors interest on late payments, if you wish.

You can also claim reasonable debt-recovery costs.
To ensure your best chances of getting paid on time there are a few simple rules to follow, such as;

•Agree terms of payment at the start of all contracts
•Monitor your payment system regularly for timely payment of invoices
•Have a good system for clearing disputes quickly
•Foster good relationships with suppliers by informing them of your payment procedures and who is responsible
•Promote healthy cash flow in both directions with efficient collection for your own sales

The late payment legislation allows you to claim interest on unpaid invoices at 8% over the base rate and reasonable debt recovery costs. For more details see here; http://www.payontime.co.uk/legislation/legislation_main.html

The compensation entitlement varies in accordance with the size of the debt:

Size of unpaid debt -- Sum to be paid to creditor
Up to £999.99 -- £40.00
£1,000.00 to £9,999.99 -- £70.00
£10,000.00 or more -- £100.00

Although the legislation precludes companies from framing their contracts to get around it, firms that are determined to pay late will continue to try to enforce terms on their suppliers.

For that reason small and medium-sized enterprises can ask a representative body to challenge grossly unfair contract terms used by their customers which do not provide a substantial remedy for late payment.

This may involve the representative body going to court on your behalf.

It is advisable that you think carefully before deciding to pursue the debt through the court and that you avoid issuing threats that you do not intend to act upon.

The Court Service provide guidance on their website to help you decide whether court action would be appropriate if payment is still not forthcoming after the debtor receives notification of the interest and compensation due.

The Court Service website is worth looking at to help you through this.

Another source of help you could turn to for advice on taking the debtor to court is the 'Lawyers for Business’ scheme, which will offer you contact details of a solicitor who can provide 30 minutes free legal advice. Their number is 020 7405 9075.

If a judgment is obtained, it may be necessary to take some enforcement action. Such action may include an application for an order to obtain information from a judgment debtor, a third party debt order, or instructing the Court Bailiff or the Sheriff.

An order to obtain information from a judgment debtor brings the debtor before the Court to be examined under Oath, by the Court.

A third party debt order is a way of obtaining money that is owed to you. If the debtor has money in a bank account, or a building society, the bank or building society can be ordered to pay the money over.

You can find more information about tackling late payment here: http://www.payontime.co.uk/.


Article written and provided by Bill Barrott, Secretariat for the Better Payment Practice Group



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