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How to Gain Compensation for Late Payment of Commercial Debts

by | Aug 3, 2017

How to Gain Compensation for Late Payment of Commercial Debts


Get compensated for chasing your debtors today!

Late Payment of Commercial Debts

 

If you offer credit to your customers you’ve probably seen the following numbers before and it’s likely you are affected by late payment of commercial debts. 80% of small businesses are owed money, resulting in £26 billion in late payments owed, and to make matters worse, around 25% of small businesses are on the brink of bankruptcy.

 

In 2015, the government appointed a Small Business Commissioner who was assigned to tackle the culture of late payment on invoices. Despite this, many small business owners are unaware of government legislation that exists to help alleviate the pain of chasing invoices.

 

You can claim interest and debt recovery costs if another business is late paying for goods or a service.

 

If you haven’t already agreed when the money will be paid, the law says the payment is late after 30 days for public authorities and business transactions after either:

  • the customer gets the invoice
  • you deliver the goods or provide the service (if this is later)

 

Your business is entitled to charge statutory late fees and a compensation rate the day an invoice turns overdue. There is no requirement to state this in your terms and conditions!

 

The interest you can charge if another business is late paying for goods or a service is ‘statutory interest’ – this is 8% plus the Bank of England base rate for business to business transactions. You can’t claim statutory interest if there’s a different rate of interest in a contract. 

 

The government states to send a new invoice if you decide to add interest to the money you’re owed.

 

Note – You can’t use a lower interest rate if you have a contract with public authorities.

 

According to the late payment legislation, 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’re allowed to charge depends on the amount of debt.

Amount of debt What you can charge
Up to £999.99 £40
£1,000 to £9,999.99 £70
£10,000 or more £100

These amounts are set by late payment legislation.

 

If you are a supplier, you can also claim for reasonable costs in recovering debt.

 

On top of that, you are entitled to charge an 8% p.a. interest rate on amounts overdue. This is probably significantly higher than you might have considered charging your customers for the efforts you put into chasing. You might be even more pleased to note that there is no limit when it comes to recovering the costs of collecting your money IF your collection efforts exceed the statutory late payment fee and compensation rate. For example, if you had to escalate collection issues to a professional debt collection agency or to a law firm, costs might be considerably higher than the statutory late fees and compensation rate. Under these circumstances, you are entitled to claim the recovery costs from your debtors. This is an important detail that many businesses overlook when collecting information about late fees. Also, due to a lack of understanding of what companies are legally entitled to charge for the collection efforts, many businesses shun away from involving external professionals to get their collection issues sorted.

 

Now, equipped with this knowledge, we advise against charging late fees across your debtors, as it might leave a bitter taste and termination of your business relationship becomes a likely scenario. What you need to ask yourself is if it’s worth keeping a customer if (s)he pays you late regularly. You shouldn’t make it easy for them to get an interest-free loan, because that’s what you do if they miss their due date!

 

Instead of charging late fees directly, we recommend using them as a warning to increase the impact of your invoice reminders. Ideally, you start warning your customer of the potential to charge late fees, if they haven’t paid your invoices 30 to 45 days beyond the due date. Give them a deadline of around 7 days and mention the late fees and compensation rate you will charge if they don’t make payment within that period.

Read The Importance of Cash Flow Forecasting and The Importance of Budgeting and Forecasting so that an unexpected late payment doesn’t result in the end of your business!

 

To learn how to create a business around your lifestyle – not the other way around, register for your free webinar recording!

Register for your free recording

 

In the 60-min strategy-packed webinar, we cover:

  • Why you need to start with the end in mind
    • You are not going to be here forever, building your life plan is more important than building your business plan. We will show you how.
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    • If you know this number it’s so easy to map everything out, if you don’t you’re always going to be a busy fool.
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    • Business will take you down some dark paths if you let it. Having a map is the only way to stay on track.
  • Why holidays are not a reward for work done, instead they are essential for you to prepare for work to be done
    • This one drill has been the biggest game changer for us and every one of our clients.
  • How To use and structure your daily/weekly and yearly calendar to ensure you build your lifestyle side by side with your business
    • The worst thing you can do is wait for your business to be successful, by that time the best part of your life will have passed you by!
  • Why it’s best to work in short bursts of time to avoid burn-out and stay motivated
    • It’s a marathon but it’s not a one pace race, hard work followed by harder play is how you last.

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