Late Invoice… what can you do?
When invoices are not paid on time, you are usually faced with a situation where you have to pay additional monies by way of legal costs in order to recover the sums owed. You don’t want to throw bad money after bad money so what do you do..
However, not all is lost, the Late Payment of Commercial Debts (Interest) Act 1998 (the “Act”) provides a mechanism for suppliers to claim interest, compensation and reasonable costs when claiming for late payment.
When does the Act apply?
- You have supplied goods and/or services.
- Your client bought/procured for business purposes.
- The contract is not a consumer credit agreement.
- The contract does not contain a provision for interest.
If the answer to all the above is “yes” then carry on reading. The Act therefore only applies to business contracts.
When does interest start under the Act?
For contracts made on or after 14th May 2013, the start date for interest depends on whether the contract specifies a payment date.
Agreed payment date
When there is an agreed payment date interest starts running the next day.
No agreed payment date
If there is no agreed payment date, the default position is that interest starts running 30 days after the latest of either:
- The date of delivery and/or supply of good and services
- The date of the invoice
- The date of acceptance (where applicable)
What rate of interest is chargeable on late payment?
In the absence of a contractual rate of interest, a statutory rate of 8% above the Bank of England’s official Bank Rate applies. Otherwise, the contractual rate applies.
What can be recovered?
If there is a clause relating to your costs in the contract, then you must charge the amount stated. Otherwise, you can recover a fixed sum as stated in the Act.
What if my legal costs exceed the fixed sum?
For contracts made on or after 16 March 2013, if a fixed sum is payable, the creditor also has an implied contractual right to be paid the reasonable costs of recovering the debt (if this exceeds the fixed sum).
What might you recover as reasonable costs?
The scope for cost recovery is relatively wide and could include costs in instructing a lawyer or employing a debt collection agency. It may also extend to administrative and internal costs.