In the current market conditions, one of the most significant issues for businesses is the late payment of invoices.

A recent report has highlighted that bad debts have risen from 9 out of 10 companies and that out of those companies, 91% had seen an increase in defaulted payments from Creditors in the last year and 1 in 10 had seen an increase by over 20% in the last 12 months.

Despite predictions that there are signs of recovery, over a half of UK businesses have reported that they are more concerned about late and defaulted payments than they were at the height of the financial crisis.  The report also highlights that there is an increase in organisation awaiting payment of at least £100,000.00 from Creditors, with 1 in 10 companies identifying that bad debts on the balance sheet equate to at least 20% of their annual profit.

The reports clearly highlight that many companies are carrying huge levels of debt on their balance sheets, which, if not recovered, could see a dramatic increase in businesses entering administration.  As credit has become increasingly expensive and restricted, businesses are now struggling to contend with such high levels of debt and a greater number of defaulted payments.  Around 63% of UK businesses have taken steps in the last 12 months to help litigate their bad debts, the most popular method being to increase debt collection activity, with firms increasing their litigation to force Creditors to pay out.

One useful piece of legislation that Creditors are increasingly using is the Late Payment of Commercial Debt (Interest) Act 1998 ("The Act"), which makes provision for recovery interest and compensation on commercial debts which are unpaid on the date the invoice falls due, or 30 days after the date of the invoice, which ever is the latter.  The legislation provides that the interest rate payable should be 8% above base rate, but to simplify claims, the rate is fixed at 6 months periods, at the rates in force on the proceeding 31 December and 30 June.  The current rate is therefore 8.5%.  The Act also makes provision for a compensation fee to be paid, which is determined by the level of debt and this falls into the following categories:

£0.00 - £1,000.00                    £40.00

£1,000.01 - £10,000.00            £70.00

£10,000.01 +                          £100.00

Our experience shows that this is proving to be an effective recovery facility and focuses the Debtors mind on making payment in a timely manner, failing which, Creditors have the right to claim both interest and the compensation charge.

Key points when delivering invoices are as follows:

• Make sure you make a clear claim for the sums due and where appropriate, set out the various items charged.
• Provide supporting documentation where necessary, or when requested.

If your require any further information on the use of Late payment legislation, or how it can be incorporated into your credit procedures, then please contact Mark Taylor.