Late Payment of Commercial Debts

Does the late payment legislation apply to everyone?

You can claim interest from a sole trader, partnership or limited liability company. However you cannot apply the late payment legislation to a personal debt.

What if a customer has more than one overdue invoice? How do I claim these multiple debts?

If each invoice relates to a separate order for goods or services, then you are entitled to claim interest and compensation on each overdue invoice. The amount of compensation varies according to the size of the claim.  Of course you have the option to add together several claims for compensation and late payment interest in one claim. If you do this, you should calculate each individually and set them out in writing so it is clear which claim relates to which order.

Do I invoice for the interest and compensation?

You should not issue an invoice for the interest and compensation. Your claim must be in writing. Interest accumulates on a daily basis, so the longer the debt is unpaid, the more interest builds up. If your claim for interest remains unpaid, you should contact the customer again explaining that interest is continuing to accrue.

Can I claim compensation for debt recovery costs and VAT, as well as late payment interest?

The right to compensation for debt recovery costs was introduced for contracts dated on or after 7 August 2002. This can be claimed alongside the statutory late payment interest. Businesses are entitled to claim compensation when a debt remains unpaid after the date specified on the contract, or in the absence of a contract, 30 days after the delivery of the goods or service. The claim for compensation and interest is made to the debtor. Please note that businesses with their own contract terms for late payment interest forfeit their right to use the late payment legislation.

In March 2013, the revised legislation entitled creditors to claim the cost of using a solicitor on top of the interest and compensation.

How do I deal with collecting late payment interest when the invoice has been partially
settled?

In legal terms, interest continues at the ‘daily rate’ on the whole of the outstanding debt. Charging interest is designed to encourage payment.

Do I have to notify a customer of my intention to charge late payment interest and debt recovery costs?

It is not necessary for a customer to have been notified in advance of the intention to charge late payment interest and compensation and you do not have to refer to it in your contract.

Should I sue for late payment interest?

You do not need to go to court to claim late payment interest and debt recovery costs. You have a statutory right to both and these should be paid with the principal sum by the debtor.

It may not be necessary at this stage to threaten your debtor with Court action, as that may be enough to prompt your debtor into responding to your calls and hopefully paying your invoice. If you decide to pursue the debt through the court, speak to us.

A customer is refusing to pay. What should I do?

If a customer ‘refuses’ to pay you, it is important to establish why, rather than immediately seeking to sue the debtor. It could be that they are disputing the payment, in which case the onus is on you to resolve the dispute.

You should write to whomever the commercial contract is with to acknowledge the outstanding payment.

If the customer ignores your letter and phone calls, has not disputed your invoice and has no justifiable reason for withholding payment, then speak to us.

If a court judgement is obtained, it may be necessary to take some enforcement action including;

An order to obtain information from a judgement debtor brings the debtor before the Court to be examined under Oath, by the Court.

A third party debt order is a way of obtaining money that is owed to you. If the debtor has money in a bank account, or a building society, the bank or building society can be ordered to pay the money over.

Instructing a Bailiff or a High Court Sheriff.

If you’re looking for a late payment of commercial debts service, please contact our commercial debt solicitors on 0161 624 6811 (Option 6).

Team: Vijay Srivastava, Shalish Mehta

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