Dealing With Debt
How to deal with late payers
The DTI estimate that 10 thousand businesses go bust every year because of poor debt collection and late payment of their invoices. Both sole traders and limited companies experience late payers. Anyone who pays their invoices late is a late payer, and can cause real cash flow problems to the person they are paying late, which can lead to poor relationships between customer and supplier.
Fortunately, The Late Payment of Commercial Debts (Interest) Act 1998 gives small businesses the legal right to claim interest on late payments from other businesses. Originally this meant that small businesses could claim interest for late payment from larger companies with over 50 employees. But since 2000 an extension was put in place to enable small businesses to make the same claims from other small businesses.
A payment is late as soon as the agreed payment date passes. If you have not agreed payment/credit terms or set them out on your invoices, the Late Payment of Commercial Debts (Interest) Act specifies a 30 day payment period. Interest (8% above the base rate) is payable after that date.
So, for example, you can put on your invoices:
"Payment is due within 30 days of the invoice date. We reserve the right to claim statutory interest at 8% above the Bank of England base rate for late payment in accordance with the Late Payment of Commercial Debts (Interest) Act 1998."
Always quote the settlement date and Late Payment terms on your invoices to cover yourself.
But what if you don't want to damage relationships with customers and fear chasing invoices will do that?
In that case you should contact your customer as soon as the payment period has expired and inform them of the interest that is going to be chargeable. You'd rather they didn't have to pay the interest, and so would they, so you should be able to arrange payment agreeably. If you cannot, you can use one of the following websites, or hire a solicitor to notify the customer. Most late payers settle their debts after the second or third reminder.
www.bepaidontime.co.uk
www.payontime.co.uk
www.justclaim.co.uk
Alternative solutions to these are to use invoice discounting or factoring to ensure you have enough working capital to see you through periods when customers are paying late or have lengthy payment terms.
Dealing With Debt
Dealing With Debt: How to deal with late payers
Dealing With Debt: How to deal with bad cheques
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