Whisper late payment law to get what you're owed

At least one out-of-pocket creative freelancer might do well to remember that the mere mention of the Late Payment Commercial Debs (Interest) Act 1998 can act as a useful tool to being paid what you’re owed, writes Nigel Musgrove, a litigation solicitor for Cousins Business Law.

Who late payment law covers

For all freelancers who go unpaid but then cite the late payment legislation in response, if this 'threat' does not succeed in bringing the outstanding monies forward, the act provides for the debtor to pay compensation, which can be substantial.

Remember though, the act only applies to commercial debt, and so will not help where the late payer is not a business or is a public sector organisation. For contracts entered into after 2002, all companies are subject to the law.

No contract or set interest?

And if there is no contract credit period for payment, and no convention such as 30 or 60 days has been established, then the default period is 30 days.

In the event that the parties have not agreed a late payment interest charge, which must be a "substantial remedy", it is 8% over the Bank of England base rate. And the other significant remedy is the right to claim compensation to cover the costs of recovery, £40 if you are owed up to £999.99, £70 if you are owed between £1,000 and £9,999.99, and £100 if you are owed £10,000 or over.

Per invoice and per court trip

This applies per invoice, so for example if you have 4 invoices of £700 each outstanding, 3 invoices of £2,000, and 5 of £15K, the total compensation will be £870 on top of any interest.

Another example: if you are owed £10,000 on one invoice, and the date of payment under the contact was March 1st 2012, the daily rate will be £2.3288 based on a rate of 8.5%, so at November 29th 2012 you will be owed £638.09 late payment interest, and can claim an additional £100 compensation, so £738.09 in all.

In the event that the customer refuses to pay, you can take them to court and claim the interest and compensation, as well as court costs. Even if you have been paid, but paid late, you can still use the law to recover the late payment interest and the compensation.

Final recommendations…

I would advise that you include details of the right to claim late payment in your correspondence with the debtor, and in any chasing telephone calls, as this might encourage them to pay up. Tell them how much the interest and compensation will be. Use it as a bargaining chip to get prompt payment; at least next time if this time’s not possible.

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