According to the Federation of Small Businesses, one in three payments due to SMEs is paid late. Roughly £26bn in total is owed to UK small businesses and 50,000 are forced out of business each year as a result. So, late payments are not just an annoyance that you might have to deal with as a business owner – they can be critical to your survival.
What can you do about late payments?
The Late Payment of Commercial Debts (Interest) Act 1998 is now almost 20 years old. It was introduced in 1998 and has since been amended by an EU directive but this hasn’t changed any of the most relevant parts of the legislation. When it was first introduced the Act had two main goals: to help avoid a situation where payments are being made late and to ensure that, if this occurs, a creditor is properly compensated.
Who does the Act apply to?
It’s not a piece of legislation for individuals – the Act only applies to a commercial debt. However, it doesn’t limit this to a particular type of commercial entity. For example, you don’t have to be a limited company. If you’re self-employed then you can also benefit from the protection of the Act, as does a sole trader or a freelancer. The debt in question needs to be a business debt but that’s one of the only restrictions. You can also make a claim retrospectively – it’s possible to claim for debts paid late going back six years.
How can you use the Act?
The first step is to contact the late payer and let them know that they’ve missed the date for the payment due. In many cases this may be the motivation required for the payment to be made and you may not have to do anything further. It’s always a good idea to ensure that any contact you have is recorded. So, send a message via email or a letter that is delivered by recorded delivery - just in case you ever need to prove that you’ve taken these first steps on a specific date this will ensure that you’re covered. Make sure that the language you use is amicable and the communication is informative, as opposed to combative. Set out the details of the debt and the payment missed and then provide an opportunity for resolution.
It’s worth noting that the Act allows you to charge interest on what you’re owed – twice a year at the end of a six month period (January 1st - June 30th and July 1st - December 31st). Interest is set at 8% above the Bank of England base rate.
If you don’t get any response – or the right response – then you might want to consider bringing in the professionals. A solicitor can help you to manage the process of communication over a business debt right up to the point where you decide that you want to take action. This could be, for example, a Letter Before Action that requires payment of a debt within seven days or court action will be taken.
To arrange your free initial 30 minute consultation call 01928 735 333.