News : Valerie Moore

Using the Late Payment Act to help getting paid on time

Being paid by the due date is necessary for most small business to maintain their cash flow and pay their own bills. A delay of paying you by 7 days means that you may well have to delay paying your supplier 14 days and so it goes on down the line.

The Late Payment Act – or to give it its full title Late Payment of Commercial Debts (Interest) Act 1998 and Supplemented by the Late Payment of Commercial Debts Regulations 2002 – allows for interest to be charged on outstanding debts at 8% over the current bank base rate; plus an administration charge.

I would suggest that in your terms and conditions and on all invoices and statements is incorporated the phrase “All outstanding monies may incur interest in line with the Late Payment of Commercial Debts (Interest) Act 1998 and Supplemented by the Late Payment of Commercial Debts Regulations 2002”.

Note the use of the word “may”; it is then a business decision whether you pursue the interest payment dependent upon your relationship with each individual customer.

I have found that just incorporating these words into the terms and conditions means that more people will pay on time or pay after a phone call to remind them the debt is outstanding and that the Late Payment Act could be invoked.

Although this legislation was implemented for business to business situations; providing it is in your terms and conditions the principals can be used for individuals.

For more information on the Late Payment Act and how to work out the interest payments and what additional charges can be made go to www.payontime.co.uk or call for a booklet to 0870 150 2500


Other tips for being paid on time.

Get the paperwork right and/or consider discounts

Delay in paying invoices can often be down to timing or that the invoice is missing relevant details.

Firstly talk with your customer – particularly larger organisations – on how their payment system works. Will an invoice that arrives on the 1st or 2nd of the month be paid by the end of that money – or – as will some organisations if an invoice arrives on the 1st of the month it will not be paid until the end of the following month in which the invoice is presented. If this is the case, ensure you invoice before the end of the month, so that it arrives by the end of that month.

Secondly put as much information as you can on the invoice.
1. details of the service/goods provided
2. dates delivered and possibly who signed for them
3. any reference / order numbers given to you when the order was placed and maybe who placed the order if you have no other reference numbers.
4. If the invoice address is different to the delivery address – spell it out.
5. If VAT is added make sure the calculation is correct
6. If there are two or more figures to add together, make sure your sums are right.
7. Say when you expect payment by (ie 30 days from date of invoice)
8. Include the right to charge interest under the Late Payment Act – see above

Considering offering a discount for early payment. For example If this invoice is paid within 7 days then £xxx (or a percentage) can be deducted from the total. Be aware of what can happen is that customers take the discount outside the 7 days – but even this usually ensures that they pay quicker than the 30 days stated on your invoice.

Perhaps you could offer an even larger discount for payment prior to the work being done, or for collecting payment on the day.


When a customer won’t pay – what can / should you do

Sometimes customers don’t pay regardless of your terms and conditions (see Using the Late Payment Act) then what are your options.

Don’t leave an outstanding debt too long. I advocate a couple of polite phone calls, keeping notes of the conversation – then using your own judgement as to whether it’s a “can’t pay or won’t pay” scenario – send a letter setting out the terms of your invoice; the action taken so far (ie sending a statement and noting the phone calls and their response) and asking for payment within 7 days; if payment is not received within 7 days that you “reserve the right to take further action”.

So what further action

1. Do nothing (Not something I would recommend)

2. Instruct debt collectors (Their fee is usually a percentage of what they collect. Use a reputable company. If it is a small amount, consider letting the debt collector keep the whole amount as their fee. You will have made your point !)

3. Ask your solicitor to write a letter (they sometimes have debt collection departments. A solicitor’s letter can often do the trick)

4. Your trade association may also offer this service (as for 3 above)

5. Serve notice through the Small Claims Court of your local County Court. Often just the paperwork arriving with your customer from the Court will elicit payment.

On using the Small Claims Court; once the papers are served the “other side” can either pay; enter a defence (which will be sent to you and at that point you can agree that their defence is justified and not pursue further); or if you wish to pursue it or no defence is entered then the case can be listed for hearing.

Assuming you get judgement – you still have to get the money if they don’t pay and this can involve extra costs of bailiffs – but the “other side” will now have a County Court Judgement (CCJs) against them; which will make it more difficult for them to get credit.

Better take precautions – take up references – and be cautious of those with CCJs – and maybe ask for payment upfront

For more information on being paid go to www.payontime.co.uk and for more details about Small Claims Court procedures go to www.hmcourts-service.gov.uk/infoabout/claims/index.htm