Yes, in business to business transactions the rules relating to late payments are contained in the Late Payment of Commercial Debts (Interest) Act 1998, and as amended in the Late Payment of Commercial Debts Regulations 2002 and the Late Payment of Commercial Debts Regulations 2013.
The period for payment is usually incorporated into a contract or in the acceptance of a company’s standard terms and conditions of trade, which should be agreed prior to any transaction taking place.
Any period for payment fixed in a contractual relationship should not exceed 60 calendar days unless expressly agreed in the contract and not grossly unfair on the supplier.
This period is reduced to 30 days, following receipt of the invoice by the debtor, if you are dealing with a public sector authority.
Where payment has not been received within these or the contractually agreed timescales, then late payment fees can be applied.
If a payment date is not agreed upon, then by law, the payment becomes late 30 days after either:
- The invoice is received by the customer/client
- The goods or services are delivered
Statutory interest of 8% plus the Bank of England base rate for late payments can be claimed up to six years in the past if you are in England, Wales or Northern Ireland and five years in Scotland.
Is there an effective way of obtaining a late payment without damaging a customer relationship?
You should always remain polite but be clear about the agreed payment terms and the customer’s obligations.
A reminder should be included about the consequences of not paying, such as adding a late payment fee, interest or passing it to a collection agent.
It can often be worthwhile raising an invoice in relation to the late payment interest and charges on a monthly basis until payment has been received as it helps to signify the seriousness and consequences of the non-payment.
In some circumstances, it may be suitable to mention that late payment could affect their credit rating.
Can I add late payment charges?
,Yes, the amount you charge is based on the amount of debt owed.
Amount of Debt vs charge:
- Up to £999.99 – £40
- £1,000 to £9,999.99 – £70
- £10,000 or more – £100
If you are a supplier, you can also claim for reasonable costs from the debtor each time you try to recover the debt. This can be charged for each invoice which is outstanding.
Can I take further action if payments are not paid?
Where a payment remains unpaid you must send a second reminder at 14 days overdue, which is worded strongly and reiterates your terms and the consequences of not paying within seven days of the letter.
If this debt remains unpaid then you can:
- Stop supply or service
- Cancel a customer’s credit account
- Take court action
- Transfer the debt to a collection agency
- Issue a negative credit reporting
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