Debt Collection and Recovery
Late payment legislation
In recent years, the Late Payment of Commercial Debts (Interest) Act 1998, and the associated Late Payment of Commercial Debts Regulations 2002, have been introduced. Under their terms, businesses have obtained a statutory right to claim enhanced rates of interest from other businesses should their invoices be paid outside of agreed credit terms e.g. 30, 60, 90 etc days.
Additionally, businesses may charge compensation from defaulting customers in the event their invoices aren’t discharged promptly. A charge of between £40-100 per outstanding invoice can be raised on a sliding scale depending on each invoice’s value. Although businesses may be hesitant to jeopardise their relationship with existing customers by invoking the legislation, it would, nonetheless, be appropriate to incorporate the legislation into their payment terms, and thus, from the start, send out a message to customers about how business will be conducted.
Our advice is to add the following statement to all of your credit application forms, order confirmations, invoices and contracts:
“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”.
Further, you may be pleasantly surprised by just how positively your customers will respond. In uncertain financial times, maintaining cashflow, along with your business’ ongoing viability, remains paramount, and those in the Exhibition food chain should invoke their statutory entitlement to enhanced interest and costs wherever possible.
Here are some top tips:
Before entering into a contract
- Before entering into contracts, check the company out on Companies House or, for individuals, request evidence of financial worth. Consider using Credit Reference Agencies such as Experian to obtain the benefit of their financial analysis of your prospective customers. Prevention is better than cure!
- Draw-up a simple, written contract.
If debtors default
- Write to the debtor giving a period within which to pay, informing them that failure to do so will mean legal action. Document every conversation you have with your defaulting client when promises to pay have been made. It will make it harder for them to subsequently deny liability if proceedings are required.
- Issue a Statutory demand on an individual if it is an undisputed debt. This is a scare tactic, however you do have a right to petition for their bankruptcy for debts over £750, and is applicable against individuals or partnerships or a comparable arrangements when proceeding to Winding Up Petitions against Limited liability Companies.
- If no response, a solicitor’s letter may make them pay the outstanding amount. Ensure that they claim your enhanced rates of interest and costs compensation – as the debtor may at least pay off the principal invoice debt, hoping to avoid the “extras”. For debtors unresponsive to the first letter, escalate straight to court action as they will likely continue to ignore subsequent ones, and you risk diluting your message.
- If you do threaten court proceedings, always carry through if on solid ground. Re-educate your debtor!
- Many debt-recovery solicitors may charge only on successful collection of a debt and thus will be highly-incentivised to collect on your behalf.