In an age where businesses rely heavily on quick and punctual transactions, waiting around for late payments can have repercussions on both your credit and your cash flow. Fortunately, changes to the Late Payment of Commercial Debts Act in 2013 have made it possible to claim interest on any outstanding payments from the last 6 years.
This includes payments that have already been made, meaning you can seek compensation for earlier offences. Of course, if you built a strong relationship with a client in the preceding years, it can be a risk to jeopardise your relationship with them because of one isolated incident. In order to prevent the loss of future earnings, it is best to know exactly what you are entitled to and how to claim it.
What does the Act say?
Established in 1998, the Late Payment of Commercial Debts Act has since undergone several revisions. The amendment in 2013 has made it easier than ever to reimburse the money your business may have lost whilst waiting on late payments. For one, there is now a definitive limit on when debtors must hand over what they owe. For B2B transactions, this occurs after 60 days, unless you are willing to negotiate a longer timeframe.
You are also entitled to a higher rate of compensation depending on the amount you are owed. Asides from late payment interest rates (which are set at 8% above the Bank of England reference rate) you will also receive a fixed lump sum based on the criteria you meet. For outstanding debts of less than £1,000 the price is £40, for those between £1000 and £10,000 it’s £70 and for any debt over £10,000 the cost is set at £100. However, should the reasonable cost of recovering these debts exceed these amounts, then you are encouraged to claim as much as is necessary.
What will happen if I make a claim?
Making a claim is generally a simple affair. In fact, it doesn’t even require a separate invoice on your part. Instead, you have only to write a letter to your client explaining the circumstances, how much they owe and the best way of making the payment.
Really though, this procedure should be regarded as a last resort, since it is hardly a viable substitute for good customer relationships. Some settlements can end in court hearings if the client continues to refute the claim, which can be messy and time consuming.
Taking the time to weigh up all your options will help you decide whether claiming late payment is really the best one available to you. If you or your accountant calculates this compensation is more than the potential drop in revenue the loss of clientele could bring about, then this could be a path you choose to take. Ex-clients, who owe you a considerable amount, are often the ones you should target, as they are unlikely to make you your money back in the future.
By Chris Weston, director of Aston Black Accountants