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I thought it would be topical (seeing as I have quite a few overdue bills owing to me at the moment) to pen a quick article about the late payment legislation. In particular, did you know that since March 2013 you can recover ‘reasonable costs’ in recovering the debt?
Unless your contract says an earlier date (mine says 15 days from invoice) payments are ‘late’ 60 days after the later of the date the customer gets the invoice and the date you deliver the goods or provide the service.
You are entitled to:
· ‘Statutory interest’ from the date payment is late, which is 8% plus the Bank of England base rate. You can’t claim statutory interest if you’ve provided for some other ‘substantial remedy’ in your contract. Statutory interest is on a ‘simple’, not compound basis (if you want a compound basis, put it in your contract).
· A fixed sum for the cost of recovering a late commercial payment. The amount varies from £40 (debts up to £999.99), to £70 (debts up to £9,999.99) to £100 (more than £1k).
· If your ‘reasonable costs’ in recovering the debt are not met by the fixed sum, since 16 March 2013 you are also entitled to a sum equivalent to the difference between the fixed sum and those costs.
You do not need to mention any of this in your contract or in any reminder. It can help focus the mind though, so you really should. Rather than going into detail you could state something like: “We understand and will exercise our statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to agreed credit terms.”
This bit about recovering reasonable recovery costs is new, and is good. The jury is still out as to what might come under ‘reasonable costs”. My view is that the more you make your customer aware early on what kinds of costs you might expect to incur in chasing a debt, the more likely it is to be reasonable to recover it. So for example, I have changed my terms and conditions to state as follows:
‘In particular, please be aware that we have no internal credit control department. Our only employee trained in such matters is Andrew James, whose time we prefer to use on fee-earning matters and who in any event finds the process of debt collection rather stressful. Accordingly, after one reminder we reserve the right at any time to pass an overdue invoice to an independent agency for collection. This agency charges up to 25% of the amount of the invoice, and their charges are generally payable regardless of how long they take to collect payment. You agree that these charges are reasonable, and that under the late payment legislation we or our collection agents will be able to recover these charges from you.’
You might want to think about doing something similar.