Late payment of invoice debt affects most businesses, more so in recessionary times. A recent survey showed that companies take more than a week longer to pay invoices than in 1998 when late payment act was introduced. Poor payment practice is costing UK business £20bn per year, according to a research commission by payments group Prompt Payer. UK Payment Index and European Commission figures have also discovered that at any given point, nearly 50% of all invoices are overdue.

You may look to cover this in your terms and condition of trading by providing that interest is due for late payment. However, how many times can you be certain, and your customer accept, that your terms and conditions do apply to the invoice debt? How many times have you charged the interest and recovered it?

There is an easy answer and it has been available to some businesses since 1998 and all businesses dealing with commercial debt since 1 November 2002. The Late Payment of Commercial Debts (Interest) Act 1998 gives you a statutory right to claim interest and reasonable debt recovery costs from commercial customers who pay late.

The rate of interest is 8% above the Bank of England base rate so that, for example, the current rate, fixed to 31 December 2008, is 13%. The Debt Recovery costs are relatively small, ranging from £40 to £100, depending on the size of the debt.

Payment is late when the agreed credit period has expired or if no agreed limit, 30 days from the delivery of the goods or performance of the service or, if later, the day the customer receives notice of the debt.

To claim the interest all you have to do is notify the customer, preferably in writing. If part payment is made this is credited to the interest first and then the invoice debt.

However, the Act is unlikely to apply if your terms and conditions already make provision for interest on late payment, if those terms are incorporated into the contract with the customer for the supply of the goods or services. The lessons are simple if you want to maximise your cash recovery:

• Check if you have terms and conditions in your contracts that make provision for late payment
• If so, use them
• If not, apply the Act

To simplify matters even further you may want to remove any clause in your terms and conditions that gives interest on late payment and apply the Act instead, either by incorporating it into your terms or conditions or allowing it to operate by default. Just beware in all cases that the customer’s own terms and conditions do not apply, if they give you interest for late payment or otherwise seek to avoid or restrict your ability to charge what is a fair rate of interest for late payment.

We can help you by giving specific advice on these matters and assist in recovering your debts and interest on competitive terms whereby we only charge (excepting disbursements) if we recover the money for you. When in doubt please contact Mark Taylor, Richard Powell or Robert Barnard