All about late payments

Here in England it is known that businesses are protected against money that is owing to them. This is all thanks to the Late Payment of Commercial Debts (Interest) Act 1998. This Act was put in place not only to ensure that any creditors were properly compensated for the late payment of debts, but also to try and mitigate the chances of late payments being made in the first place.

So what is the late payment law in England and what does it mean for those companies who pay late?

What is the late payment law in England

This particular act came in during November 1998 and is only applicable to commercial debt. It applies not only to limited companies, but also to those who are self-employed including sole traders and freelancers.

Debt that has come from a personal transaction is not covered with this particular Act.

How do I know if it applies to my debt recovery?

The main thing to consider is whether or not the debt is commercial or if it is personal. If it is owed by an individual or was due to non business purposes, this law will not apply.

Time is also not a limiting factor for this debt, in fact some businesses have been able to claim for retrospective debt up to 6 years in the past.

What rate of interest can I charge for a late payment on an invoice?

Interest rates are set to be one standard rate, paid twice a year. They run on a 6 month basis between January 1^st to June 30^th to July 1^st to December 31^st.

The standard rate of interest is 8% above the base rate set by the Bank of England and this is applied at the start of the 6 month period. Both parties can agree on a different rate of interest, however, this should be something that is agreed on and is considered a substantial remedy and should never be forced.

Alongside this added interest, a late payment charge can be added to the debt once it becomes overdue. This can range from £40 to £100 and is largely dependent on the amount that is owed.

What are the first steps of collecting a late payment?

Once you realise that a debtor is late in paying their invoice, the first step should always be to contact them. This should be seen as an attempt to amicably resolve the matter and can be in the form of emails, letters or phone calls.  You should never try to intimidate the debtor, as not only will this have an adverse reaction on whether or not they are likely to pay but could also have ripples for your business as a whole.

If this initial contact does not work, then you will need to think about heading to a reputable debt collection agency instead. They will have the knowledge and skill to ensure that the process of collecting a payment is followed.

Here at Cobra Collections, we are just such a debt collection agency. Therefore, if you have debt that needs collecting, why not get in touch with us today and see if we can help you get back the money you are owed?