Getting your interest
Late payment of invoice debt affects most businesses, more so in recessionary times. You make look to cover this in your terms and condition of trading by providing that interest is due for late payment. However, how many times can you be certain, and your customer accept, that your terms and conditions do apply to the invoice debt?
How many times have you charged the interest and recovered it?
There is an easy answer and it has been available to some businesses since 1998 and all businesses dealing with commercial debt. The Late Payment of Commercial Debts (Interest) Act 1998 gives you a statutory right to claim interest and fixed compensation for reasonable debt recovery costs from commercial customers who pay late.
The rate of interest is 8% above the Bank of England base rate is fixed for six months a a time. The debt recovery costs are relatively small, ranging from £40 to £100, depending on the size of the debt.
Payment is late when the agreed credit period has expired or if no agreed limit, 30 days from the delivery of the goods or performance of the service or, if later, the day the customer receives notice of the debt.
To claim the interest all you have to do is notify the customer, preferably in writing. If part payment is made this is credited to the interest first and then the invoice debt.
However, the Act is unlikely to apply if your terms and conditions already make provision for interest on late payment, if those terms are incorporated into the contract with the customer for the supply of the goods or services.
The lessons are simple if you want to maximise your cash recovery:
To simplify matters even further you may want to remove any clause in your terms and conditions that gives interest on late payment and apply the Act instead, either by incorporating it into your terms or conditions or allowing it to operate by default. Just beware in all cases that the customer's own terms and conditions do not apply, if they give you interest for late payment or otherwise seek to avoid or restrict your ability to charge what is a fair rate of interest for late payment.
We can help you by giving specific advice on these matters and through our debt collection division, Incasso, recovering your debts and interest on competitive terms whereby we only charge (excepting disbursements) if we recover the money for you.
If in doubt please do not hesitate to contact us...
Nick Carr
0845 404 1520
nick.carr@cobbetts.com
Jon Hainey
0845 165 5426
jon.hainey@cobbetts.com
Keith Mills
0845 404 2416
keith.mills@cobbetts.com
The content of this briefing note is for information only and should not be relied upon as a substitute for legal advice. Copyright 2009 Cobbetts LLP - All rights reserved - February 2009
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