29 Mar 2017
Cashflow shortages can cause headaches for all businesses, but with £134million written-off by UK SMEs every day, it is the smallest businesses that most acutely affected.
With three out of four SMEs writing off debt, and one in five losing contracts due to the subsequent cashflow problems, a robust approach to debt recovery can ensure steady growth and cashflow security without the need for costly and cumbersome solutions such as invoice financing.
If you are a business that is owed money by another business then the secret weapon in getting your outstanding bills paid could be the Late Payment of Commercial Debts (Interest) Act 1998.
The right to charge interest applies to overdue accounts relating to a sale of goods, the hiring of goods or to a supply of services.
Interest can accrue from the latest of 30 days after the goods are supplied or the service is completed, 30 days after receipt of invoice (or the customer is told the amount due is payable), or the agreed date for payment.
The "statutory interest" rate chargeable, which is simple and not compound, is the Bank of England base rate plus 8% was set to allow the small business to cover late payments by bank borrowings.
Once statutory interest begins to run in relation to a qualifying debt, the supplier is also entitled to a fixed sum. For a debt less than £1000, the sum of £40; for a debt of £1000 or more, but less than £10,000, the sum of £70 and for a debt of £10,000 or more, the sum of £100.
The beauty of the legislation is that it cannot be contracted out of and applies automatically.
The wording of the Act is also vague around whether a ‘debt’ is all sums due or whether the compensation can be charged on a per invoice basis. The per invoice basis is clearly significantly more helpful.
The fact that compensation and interest flow from an arms-length piece of legislation naturally means that it is a less ‘abrasive’ form of debt recovery or credit control (no referring to some small print in a contract or raising court action) and perhaps therefore allows relationships and goodwill between buyers and sellers of goods and services to be preserved.
The compensation and interest can also be charged without the need to go to court.
If you do a good job for a commercial client you can expect to be paid on time - and the Act allows you to gently remind your clients that a failure to do so will potentially be costly for them.
Aberdein Considine is one of the UK’s leading law firms when it comes to credit management and debt recovery.
Our debt recovery department is described as 'extremely efficient' by The Legal 500 who also rank us as a leading Scottish law firm in the field.
Learn how our debt recovery solicitor team could help your business.