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Chasing Payment
When you are a supplier, late payments have a terrible impact on your cashflow. However…
Some companies have been advised by their accountant not to pay invoices when they are due, and to wait until the last possible moment.
Some corporates have inefficient processes, where an inexperienced member of staff may perhaps file your invoice in a drawer instead of passing it to the accounts payable department.
Retailers and high street brands are often accused of taking too long to pay their suppliers.
Your rights
Your contract should state when payment is due. You can agree any payment terms you wish, but if it’s longer than 60 days, it must be fair to both parties.
If not made clear in your contract, the law says payment is late 30 days after the customer gets the invoice, or 30 days after you deliver the goods or provide the service (if that happens after the invoice is issued).
If a business owes you money for goods or services, you are legally entitled to claim interest and debt recovery costs under the late payment legislation.
Statutory interest
Unless stated differently in your contract, statutory interest is Bank of England base rate + 8%, so is currently 8.5%.
If your contract is with a public authority, you can’t charge less than that.
Debt recovery costs
You are also entitled to claim a fixed sum to go towards your debt recovery costs.
Up to £999 = £40
£1,000 to £9999.99 = £70
£10,000 or more = £100
Example
Let’s say a business owes you £1,000, and is 50 days late to pay:
- Annual statutory interest is 1,000 x 0.085 = £85
- Daily interest is £85 / 365 = 0.23
- Interest due after 50 days is 50 x 0.23 = £11.50
- Late payment penalty = £70
- Total amount due = £81.50
You would write to your customer adding this amount to the original invoice.
Make it clear what will happen if they don’t pay. That is, that interest accrues daily and you will be forced to take legal action to collect the debt.
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