There is currently an increase in late (or non) payment of invoices. If this is affecting you, there are a few things you can do to hopefully get paid this time and avoid the same situation in future.

Your Rights In UK Law

The UK introduced legislation to encourage prompt payments: the Late Payment of Commercial Debts (Interest) Act 1998 and the Late Payment of Commercial Debts Regulations 2013. They define in law what is a late payment and what you're allowed to do about it. There’s also something called the prompt payment code, where businesses voluntary commit to make sure that invoices are paid within 30 days as the norm.

By default, a payment is considered late if it's not made within 30 days after receiving the invoice (or the goods in some cases). But you can choose to specify a different due date on your invoice.

Once the due date passes without payment, the amount owed (the debt) is classed as late. At this point, you are entitled to charge interest at a statutory rate, which is the Bank of England's base rate plus 8% (so currently 13%). It sounds like a lot, and often reminding somebody of that rate will encourage them to pay sooner rather than later.

You are also entitled to claim compensation at a fixed sum in order to cover the debt recovery costs. The amount is based on the value of the debt (the amount unpaid from the invoice):

Amount of debt What you can charge
Up to £999.99 £40
£1,000 to £9,999.99   £70
£10,000 or more £100

But first...

I would always recommend trying the personal touch before you add interest and compensation charges.

First of all, try a friendly phone call. People have sometimes missed the email, forgot the day, or they are on holiday. There are all sorts of reasons that they haven't paid your invoice and they're not always deliberate. Once you're spoken to them, I would always follow that conversation up with an email reminder including the original invoice.

If the payment is not made by the date you discussed, then it's a good time to remind the client of the rate of interest and compensation fees you are entitled to charge. Offering to waive the additional charges if full payment is made within a specified time period is a good way to get your money. You may choose to ask if a repayment plan would help the client settle their debt. These are easy to set up and often result in full payment, though over a longer timeframe.

If this still doesn't result in you getting paid, you can send a legal ‘demand for payment’. This is a legal letter stating the dates and amount of the debt, when it is due and how long they have to pay before further action is taken. It is admissible in a court of law if you do end up in a small claims court. At this point you may want to seek legal advice on debt recovery.

Prevention Tips

Of course, it is best to avoid ending up in a late payment situation at all, and good communications are key:

  1. Explain your payment terms to your clients early on. If you want payment upfront, then you should be talking about that in your first call or meeting.
  2. When you have completed the work, make sure your invoice is sent promptly. Invoicing at the end of the month, the following month, early the next year etc. makes it much more likely your client will have already forgotten whether they have already paid. It's best to get that invoice promptly, straight after the work is completed..
  3. Make sure your invoice clearly states the invoice date, the due date and how to pay. You can offer various different payment options, often at a very low cost. For regular invoices and payments, you can automate the whole process so your account software sends the invoice and payment service collects the money without you lifting a finger!
  4. You could consider changing your payment terms. If you always give people 30 days and you have a lot of trouble with people paying late, you can change those 30 days down to 14 days, 7 days, on receipt or you could even say payment upfront. Or you can split payments to align with strategic points of delivery of the work. This is all very dependent on what kind of service you provide. We are used to paying for surveyors up front, personal services on receipt (e.g. the hairdresser) and many goods prior to delivery. It tends to be trade services or trade goods where longer terms are prevalent but this doesn’t have to be the case.
  5. You may want to think about a formal credit control process, possibly running a credit check on new clients before starting work.
Accounting Software

Accounting software is really going to help you here. It's really clear on who you've sent the invoices to, whether they have been received and viewed. You can track the payments, and you can schedule automatic reminders at strategic dates.

If you need any more information, help with overdue payments, credit control or help setting up accounting software, please get in touch

For Reference:
Late commercial payments: charging interest and debt recovery
Government tackles late payments to small firms to protect jobs

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