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One of the UK’s leading regional law firms is urging businesses to take action against persistent late payers through the use of late payment legislation.
Jonathan Blair, partner at Dickinson Dees, said it was simply unacceptable for companies to wait months before they were paid, and called on them to use late payment legislation to force creditors to settle outstanding bills.
"Part of maintaining any successful business is good cashflow management and the late payment legislation can help with credit management," said Mr Blair.
"The UK was one of the first countries in the EU to introduce late payment legislation to help promote a culture of prompt payment, but many businesses are still unaware that where commercial debts are paid late, and where no contractual right to interest exists between the parties, a claim can still be made for interest."
Businesses, including charities, are entitled to claim interest for late payments for all commercial business-to-business and public sector transactions, encompassing sole traders, trusts and corporate bodies.
Mr Blair explained: "Payment can be claimed in line with Terms and Conditions existing between the parties, or where contractual terms do not make provision for interest, interest becomes due under the Late Payment Act after any period of credit agreed between the parties has ended.
"In all other instances, the Act permits late payment interest to run if the invoice remains unpaid after 30 days following invoice or the provision of goods/services, whichever is the latter – and it doesn’t matter how large or small the debt is, if it remains due, you can claim interest."
Mr Blair said interest was recoverable at Bank of England Base rate (prevailing from the date interest began to accrue) plus eight per cent, and companies can also levy a compensation charge - currently between £40 and £100.
At the start of a six-month period (31 December and 30 June each year) the official dealing rate of the Bank of England (the base rate) will be made a fixed ‘reference rate’ for the subsequent six months. To determine what interest rate should be used when calculating interest on a late payment, eight per cent needs to be added to the ‘reference rate’ that covers the six-month period in which the debt became late.
"You charge interest on the gross amount of the debt (including any element of VAT), but you do not pay VAT on the interest," added Mr Blair.
"In addition, you can levy a compensation charge, which is £40 where your outstanding debt is up to £999.99, £75 for debts of £1,000 to £9,999.99 and £100 for debts over £10,000. In many cases, the threat of additional costs is enough to prompt payment from debtors."
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