Late Payment Legislation is useful tool
19th May 2009
Natalie Craine highlights the effects the recession is having to businesses and credit limits
Few businesses are immune to the effects of recession.
With credit stretched to its limits, businesses are now seeing a marked increase in the time taken to receive payment for their work.
Late payment legislation is a useful tool for businesses, both to deter late payment, and to obtain compensation from debtors when it becomes unavoidable.
To minimise late payment, best practice involves a pre-contract system for evaluation of potential purchasers’ financial status, accurate invoicing and a framework for dealing with genuine complaints.
Unfortunately, best practice is not always practicable.
For those debts which, despite best efforts, slip through the net late payment legislation ensures that, where appropriate, maximum interest and compensation can be claimed.
All businesses have the right to claim statutory interest on overdue commercial debts.
All oral or written contractual terms are relevant.
If no time for payment has been agreed, a debt will usually become overdue if it remains unpaid 30 days after invoice.
If a contractual interest rate is specified it will usually be relied upon instead of the legislation.
A low contractual interest rate reduces the interest a creditor is entitled to.
Where late payment legislation applies, interest on debts accrues for the overdue period at a yearly rate of eight per cent above the relevant Reference Rate, which varies according to the Bank of England’s base rate.
A compensation payment of £40-£100 can also be claimed.
To maximise the use of late payment legislation as a deterrent to would-be late payers, purchasers should be informed that you intend to charge late payment interest and/or claim compensation where payment is late.
Businesses, especially SMEs, often struggle to actively manage debt recovery, spending disproportionate amounts of time chasing payment for work done at the expense of productivity.
A solicitor can be invaluable in debt recovery and will often succeed in recovering not only the debt but also compensation, interest and contributions towards legal costs.
For more information, contact Natalie Craine o 01422 250650
Author: Natalie Craine (RebeccaA@bhplaw.co.uk)
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