Tag Archives: debt recovery

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



Insolvency in the Construction Industry

Here’s some concerning information about insolvency in the construction industry from the team at Burton Sweet Corporate Recovery.

Interestingly, this industry has always contributed a disproportionate number of business failures. Graham Down, Director at Burton Sweet, says that according to the most recent figures produced by the Office of National Statistics, construction output has fallen for each of the last two quarters, meaning that it is technically in recession.  They offer a free initial consultation to any business in the construction industry who is facing difficulty.

So, what are the most common causes of the high failure rate? According to Burton Sweet, they are:

  • Retention

Companies are failing to keep track of, or even chase, retentions. A Retention is a sum (commonly 5%) held back from by a client from the contractor (or the contractor from sub-contractors) so as to ensure that the contractor completes all its contractual obligations.  Half of the retention is normally released on “practical completion” of the contract with the remainder paid over at the end of a “defects liability period”.

  • Housing Grants, Construction & Regeneration Act 1996 (HGCRA)

Companies are failing to apply their statutory rights when a client or main contractor pays less than it should. The HGCRA was set up to identify poor payment practices and extensive, expensive and time-consuming disputes as amongst the key problems besetting the construction industry

  • Record keeping

Not all contracts need to be in writing, believe it or not; an oral contract is usually just as binding on all parties.  In the past, they needed to be in writing to be protected by HGCRA (see above) but that has now changed.  Consequently, disputes over contracts are difficult to resolve if there is no paper trail.

  • Over-stretching

Over-stretching has been the downfall of many well-established construction businesses due to companies taking on work outside of their usual remit when times are hard, resulting in costly mistakes, delays and having to re-do work.

  • Supervision

Even the most experienced and well-qualified employees can get it wrong sometimes.  Tendering, estimates and contract documentation need to be checked rigorously; the buck always stops at the top.  Many companies in the industry have been brought to their knees because of administrative failures before a job started.

  • Over-exposure

The construction industry is disproportionately susceptible to insolvency.  When one company fails it can bring down suppliers and sub-contractors who are owed money – the so-called “domino effect”.  Because construction businesses are often involved in just a relatively small number of contracts at any one time, they are more vulnerable because they often have all their eggs in one basket.

  • HMRC

Due to the pressures of cash flow, money set aside to pay taxes as a lump sum, (PAYE/NIC, VAT and corporation tax (or schedule D for unincorporated businesses) & the Construction Industry Scheme (CIS)), it can be tempting to use it to ease the immediate situation, making it extraordinarily difficult to recoup and catch up.

Although these are examples from the construction industry, heeding issues such as record keeping, supervision and HMRC is good practice for any business.

Extracts courtesy of Burton Sweet Corporate Recovery, E-brief August 2016


Excuses Excuses Excuses!

10 Late Payment Excuses…

 “I can’t afford to pay you until my customer has paid me – This is a tad tricky; can your customer make an acceptable immediate part payment? You need to pin your client down; insist on an immediate part payment and then suggest a review in 2 weeks’ time.

“The cheque is in the post” Oh that old chestnut it keeps cropping up doesn’t it! Explain it has not been received and should it ever arrive you will destroy, then provide your bank account details and ask for an electronic bank transfer.

“I’m not paying I have a dispute” If there is a genuine dispute then its imperative you establish what the dispute is and whether its genuine or bogus.

“I haven’t received your invoice” Scan it in to your computer and e mail it to your customer whilst asking for an electronic payment.

“I sent the invoice back to you it didn’t bear the right purchase order number” Ensure that you get your documentation right first time so as to remove this as an excuse. If you receive purchase orders PLEASE PLEASE PLEASE read the small print. Make sure your invoice bears the correct info and is addressed to the right person/company – if in doubt telephone the customer upon receipt of their order to double check.

No one here to sign a cheque” ask for a BACS payment

The Director/Owner has died” Ok very very occasionally this may have tragically happened and although sad you still need your money! If the firm was a sole owner then the business has ceased, however, it may continue to be run by a relative in effect taking over the reigns. In law you may have a claim against the Estate however, you may wish to consider your position and take legal advice depending upon the size of the debt.

The Alchemy of Debt Recovery

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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!


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!