The scourge of late payments

Let's start with some facts:

More than half (54%) of the UK’s small and medium sized businesses are suffering as a result of late payments. According to research from Pay UK, an estimated £23.4 billion of late invoices are owed to these firms. 

We've done some research and summarise here what to us at Contracts-Direct look like sound ideas and strategies for reducing the risk of being paid late. 

But before seeing what others are suggesting, our own recommendations are:

1. Have a well-crafted set of terms and conditions that set out clearly your payment terms;
2. Ensure that those terms are replicated in your quoting and invoicing procedures;
3. Only ever deviate from your standard payment terms by written agreement with a customer;
4. Get as much payment up-front as you reasonably can;
5. Don't be scared of sending reminders about a due payment;
6. Listen carefully if a customer says they can't pay and assess how genuine they are;
7. Be reasonable if genuine explanations are given and agree a payment plan;
8. Only concede to a late payment if you really have to e.g. they are a good customer;
9. Never let a customer get into the habit of paying you late- you are not their bank.

The British Business Bank has some useful tips, including:

• Carrying or credit checks; and
• Reviewing payment terms

BACS' 10 late payment tips include:

• Using Direct Debit to get paid; and
• Chase payments early- a polite call or email can help pre-empt a payment issue.

When does a payment become late?

If you do not agree a payment date, the law says the payment is late 30 days after either:

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

Can you charge interest if payment is late?

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 cannot claim statutory interest if there’s a different rate of interest in a contract. 

Interest is normally payable from the end of the agreed credit period. If no credit period was agreed, interest is payable 30 days from the later of:

• the date of supply, or
• the date the buyer was told the amount due
• the conclusion of any procedure for checking that
• the goods conform to the contract (and the procedure itself cannot take more than 30 days)

If you supply a public authority, interest will be payable after 30 days, even if a longer payment date was agreed. You cannot agree to extend the 30 day period.If you supply another business, interest will normally be payable after 60 days even if a longer payment date was agreed. However, a credit period of more than 60 days can be agreed if it is not grossly unfair to the supplier. 

Can you claim a debt recovery charges?

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. You can only charge the business once for each payment.

Other actions you can take:

1. Offer incentives for early payments: Consider offering discounts or other incentives for customer who pay early or on time. This can help encourage prompt payment and build goodwill with your clients.
2. Consider factoring: Factoring is a financing option where you sell your outstanding invoices to a third-party company, which pays you a percentage of the total amount upfront. This can help improve your cash flow and reduce the risk of late payments.
3. Seek legal assistance: If all else fails, consider seeking legal assistance to recover the outstanding payments. A lawyer can help you understand your legal options and advise you on the best course of action.

Legal Notice:

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Note: This publication does not necessarily deal with every important topic nor cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. The information contained in this document is intended to be for informational purposes and general interest only.

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