Category Archives: Commercial Debts

Why you should claim Late Payment Interest and Compensation

According to research conducted by BACS in 2015, “over three quarters of UK businesses suffer from late and non-payment of invoices. The payment giant, which processes millions of electronic business payments every day, found that an astonishing 76% of businesses are being affected by late payments of up to 6 months beyond agreed contract terms.

BACS also revealed that in companies that are suffering from late and non-payment:

  • 20% of directors have been forced in to taking a pay cut
  • 26% have had to increase bank overdraft use
  • 23% have no choice but to pay their own suppliers late”

* Source http://www.debtadvocate.co.uk/the-effect-of-late-payment-on-business/

The effects of late payment can be extremely detrimental to the  economic health of a business and its owners.

The Late Payment of Commercial Debts (Interest) Act 1998 was introduced to compensate creditors for the late payment of debt and to deter late payment. It only applies to the commercial supply of goods and services where you don’t have a provision for interest in your Terms of Business.

In brief, it enables you to claim interest and compensation for invoices that are not paid on time.

You can claim Late Payment Interest and Compensation if:

  • You have supplied goods and services
  • Your buyer bought for business purposes
  • The contract is not governed by a consumer credit agreement

You don’t have to tell your customers that you will claim Late Payment interest or compensation if they fail to pay on time before they have actually breached your payment terms. However, it may be beneficial for your cash flow to tell them in advance of your intentions, should payment be made late. You could put warnings to this effect on your invoices; your statements and in your terms of business.

Full details of how much you can claim can be found on our website: http://www.acquit.org.uk/claiming_late_payment_interest_and_compensation

 

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Late Payment Legislation changes

Posted by diane.bantten

LATE PAYMENT LEGISLATION UPDATE

Listen up …. some good news for businesses.  Late Payment legislation has at last been updated as from 16th March 2013.

The Late Payment of Commercial Debts (Interest) Act 1998 has been updated with effect from 16 March.

What has changed?

The Act continues to apply to contracts for the supply of goods or services where the customer is either a business or public authority and still imposes a statutory rate of interest of 8% over Bank of England Base on late payments unless the parties have agreed a ‘substantial remedy’.  However the Act has been amended so as to:

  • impose maximum payment periods;
  • limit the amount of time a purchaser has to verify goods or services; and
  • increase the amount of payment enforcement costs a supplier can recover.

These changes only apply to contracts under which statutory interest is accruing (ie if there is not a ‘substantial remedy’ under the relevant contract).

The maximum payment period

In a contract where the customer is a public authority the parties can agree a date for payment of up to 30 days from the latest of the customer:

  • receiving the goods or services;
  • receiving the supplier’s invoice; or
  • verifying that goods or services conform to the contract.

If the customer is a business, the payment period can be up to 60 days after the latest of the events listed above. The period can also exceed 60 days but only if expressly agreed by the parties and if it is not ‘grossly unfair’ to the supplier.

The maximum verification period

The Act limits the amount of time purchasers have to verify the conformity of goods or services to 30 days, unless the parties expressly agree a longer period and that period is not ‘grossly unfair’ to the supplier.  Longer periods may be appropriate in particularly complex contracts.

Recovery of costs

Suppliers were already able to claim a fixed sum of between £40-£100 (dependent on the size of the debt) under the existing legislation to compensate them for the costs of recovering late payments.  The changes introduce the additional right for a supplier to claim the difference between the reasonable costs it incurs in debt recovery for example when you instruct Acquit Debt Recovery! Any unreasonable attempt to exclude either the fixed sum or top-up costs will fail.

Contract Law and Terms of Business

Posted by diane.bantten

Contract Law – a recent case.

Azimut-Benetti SpA v Healey [2010]

A contract contrained a clause entitling a yacht building company to damages of 20% of the full contract price on the buyer’s default.  The buyer argued that the clause was a penalty clause and thus unenforceable.  The trial judge disagreed finding that the clause was commercially justifiable as providing a balance between the parties upon lawful termination.

This brings me neatly on to terms and conditions of business.  What do you do if you don’t have any?  You could :-

1. Write your own.

2. Download a template from the web.

3. Let your solicitor or lawyer have a go.

4. Copy some terms from a competitor.

5. Let Acquit write your terms.

Whichever option you choose should depend upon why you need business terms and conditions. Do you want some professional-looking text simply to look, well, professional? If so, then all you need to do is choose Option 2 i.e. download a cheap generic set of terms from the web.

If, however, your business will be offering goods or services on credit then you need a set of business terms suited for this purpose. This is because a great set has the ability to:

i) help prevent late payment by your customers or debtors. ii) give you real options in case of late payment or non-payment by your customers.

1. Write your own. If you have some legal training or higher education in commercial and contract law, then you could draft your own terms. But how long would it take you? And how can you be sure that you include everything important, especially from a credit management perspective?

2. Download a template from the web. If you are on a tight budget then this might be an option. But do you know who wrote the original terms and conditions template? Do they work in practice? How will they stand up in court if you need to enforce your rights? Who will create the additional clauses you’ll need for your particular business and industry? How much customisation is possible? And, again, how can you be sure that they include everything important, especially from a credit management perspective.

3. Let your local solicitor or lawyer have a go. Yes, they have the training. But in practice, how many sets of terms do they create for local businesses on a regular basis? One or two a month is usual because many solicitors are also busy focusing upon divorce, conveyancing, probate and litigation work. And the biggest question here is how much will a solicitor charge you for a fully bespoke set of terms and conditions?

4. Copy from a competitor. Whatever you do, don’t be tempted to copy a competitor’s terms and conditions. If you are caught, then there could be financial penalties and even worse, the negative publicity to suffer as a consequence.

Copied terms are rarely sufficient to protect the business fully. This deficiency is usually due to either lack of relevant credit management terms or the absence of clauses which address key legislation such as the Data Protection Act, Sale of Goods Act etc.

5. Ask Acquit Debt Recovery to create your business terms and conditions. We will fully-customise for you a set of terms and conditions that will be right for your business.

It is possible to word your terms so that your business can benefit financially from a free debt collection service and from massive improvements in your cash-flow.

Take Control – Cash is King!

Posted by admin

Controlling your cash-flow is of paramount importance; after all, it is the life-blood of your business. Now is an excellent time to review your credit control procedures. If you find you are being paid consistently late, legislation was introduced to try and protect you from this situation. The Late Payment of Commercial Debts (Interest) Act 1998 and was introduced in 2002.

The legal status of the business you are seeking to claim interest from is irrelevant. Late payment interest can be claimed except in the case of personal debt. You can have the best credit control procedures available; however, often the debtor will only pay up when threatened with action.

It pays to seek professional advice at the point of non payment. Contact from a third party such as Acquit will grab your client’s attention. A third party can assist you in maintaining a good relationship with your client who should understand that in these tough times cash is king and we all deserve to be paid on time!

My top tips

Posted by admin

So, is there an element of alchemy? …… Maybe!

  1. Review your current credit control procedures – include your bank details on your invoices and ask for electronic payment it will boost your cash flow.
  2. Do your homework – when supplying new customers obtain a credit report.
  3. Ensure your terms of business are up to date – be proactive and chase early.
  4. Ensure your terms of business are notified to your client at the very beginning of your relationship .
  5. Demand interest and compensation.
  6. Enforce your terms of business, if you are due payment on day 15 ensure that you pick up the telephone and ask for payment, follow that with a formal letter of demand.
  7. Ensure the lines of communication remain open.
  8. Don’t allow your client to fob you off – be firm.
  9. When all else fails give me a call!

The Alchemy of Debt Recovery

Posted by admin

The definition of “alchemy” is supernatural power! I have had the accusation levelled at me that I do in fact possess a gift when it comes to the skill of recovering monies that are owed to my clients. I am not sure that being called a witch is terribly complimentary!

recovery

The reality is that providing my client prepares the ground work and, keeps his or her house in good order then my job is made that much easier. Well documented files are a must should it come down to non payment because of a dispute.

That preparation by my client starts at the point of sale… It doesn’t matter whether my client is selling a widget, recruitment services, scaffolding, accountancy, or marketing services, the list is endless. What does matter is that you know your customer / client as intimately as possible.

For instance, when someone comes to you for a service do you have any mechanism in place to obtain a credit worthiness score? Alternatively, do you have an account application form which helps you gather as much information as possible and includes the option of seeking referee details? Do you seek references?

If none of these steps are appropriate to your particular business sector then have you ensured that you have strong terms and conditions of business, terms that have been reviewed recently and are enforceable? Are your terms notified to your client prior to the striking of the deal? Furthermore, have those terms been acknowledged and accepted?

So many of my clients are quite happy that their terms have been incorporated into the contract, however, they are disappointed when I point out that adding their payment terms on an invoice, for instance, “Payment terms 14 days” it’s far too late. The deal has been done, the work carried out and the contract to all intents and purposes has been closed.

You cannot introduce a new term to your contract following its conclusion unless it has been agreed by both parties – it’s just too late. For the most part however, the customer will pay up… eventually!

Let’s talk about your credit control procedures for a moment. Do you have any procedures in place? If not, now is an excellent time to get your book-keeper to review your systems in terms of what happens following conclusion of a job or supply of goods / services? A number of smaller businesses don’t have anything in place at all and put their faith in their customer paying up on time. Although I hate to be the harbinger of doom and gloom, the current economic climate does not look set to improve any time soon, clients are hanging on to their money for as long as possible and in some cases your client won’t be in a position to pay you because they too are waiting to be paid! I believe it’s called the domino effect… Sad, but true, many larger companies, who can pay you, believe that because of their powerful position in the market and their importance to you as a client, they can stretch their payment terms to 90 + days. What do your terms of business say with regard to late payment? Some time ago now, legislation was introduced to try and protect you from late payers. The Government introduced the Late Payment of Commercial Debts (Interest) Act 1998 – it was introduced in 2002.

The legal status of the business you are seeking to claim interest from is irrelevant. It can be a sole proprietor, partnership or limited liability company. You cannot apply late payment interest however to personal debt.

Let’s wind back a bit, you have picked up on the fact that you have not received payment – I would hope that you have some sort of diary system in place that alerts you or your book-keeper to the fact that your money hasn’t arrived. What’s the first thing you or your credit controller should do? It is essential that you get in touch with your client – I always prefer talking to people when it comes to money – it is so easy to ignore a letter, e mail or text!

Putting people on the spot, politely of course, is the best way to establish whether there is a genuine reason for non-payment. Are they a cannot pay or won’t pay case? If the “cheque is in the post” make sure you make a diary note to follow it up in say 5 working days time. If after 5 days your cheque hasn’t arrived, and depending on how patient you are inclined to be, suggest an electronic bank payment. Better still if you have access to a card machine then offer to take a debit or credit card payment. Please avoid sending out standard letters before you have spoken to your customer – again standard letters are easily ignored.

Now might be a good idea to calculate the interest and compensation your client now owes you? For help in calculating interest and compensation there are many self help websites out there. Have a look at www.payontime.co.uk which is very helpful and gives the answers to many “frequently asked questions”.

If you didn’t state a payment period in your terms of business, the aforementioned legislation states that a payment becomes “late” after 30 days. Currently you can charge 8% above the prevailing Bank of England base rate. In addition, you can charge compensation on each and every individual invoice.

The amount of compensation that you can charge depends upon the amount of the invoice.

Up to 999.99 you add £40.00 per invoice
1,000 to 9,999.00 you add £70.00 per invoice
10,000 and over you add £100.00 per invoice

It may be enough to advise your client that if the payment does not arrive as promised then you will add interest and compensation.

If it is the case that they are not able to pay their debts as they fall due consider entering into a stage payment agreement – but beware – don’t get yourself into a position where should you need to sue at a later stage they are able rely on some onerous term that you agreed to in order to secure payment.

In my experience it pays to seek professional advice at the point of non payment. Your customer will often sit up and pay attention when they are contacted by a third party seeking payment on your behalf. A third party can assist you in maintaining a good relationship with your client who should understand that in these tough times cash is king and we all deserve to be paid on time!