Commercial Debt Management – Using the Law Effectively

Commercial Debt management on late payment or non-payment of commercial debts can be managed by using the law effectively. The late payment of commercial debts (interest) act 1998 can be used to compensate creditors for late payment as well as deter debtors from late payment.

It is exclusively for the supply of goods and services where the creditor, in its T&C, has not made provision for interest. The act allows the creditor to claim for interest, compensation and reasonable costs.Commercial Debt Management

Commercial Debt Management – When can you Claim

As part of your commercial debt management process if your client hasn’t paid on time you can make a claim provided

  • You supplied goods and services
  • Your buyer bought for business purposes
  • The contract IS NOT a consumer credit agreement
  • The contract does not contain interest on overdue invoices
  • Contract DOES NOT include any other remedy for non-payment.

Commercial Debt Management – What can you claim

  • Interest at 8% above Bank of England base rate. From the date the invoice is due to the date it is paid. You have six years to make this claim.
  • If no agree credit terms then interest is charged 30 days after supply. Or date the buyer told it was due. Or the date supply confirmed as complete and fulfilling terms of the contract.
  • Provided you are still within six years you can claim compensation even if the invoice is paid.
Invoice AmountCompensation
Up to £999.99£40/invoice
£1,000 – £9,999.99£70/invoice
£10,000 and above£100/invoice

The above compensation is intended to cover the costs of recovering the debt. If the costs are more, you can claim for what hasn’t been covered above. E.g costs of employing a commercial debt recovery agent.

When allowing credit to your clients it’s a good idea to credit check them and their companies. It’s also a good idea to let your creditors know that you know the regulations and how to use. This can be a powerful deterrent.

If you already have terms that include interest on late payment than these terms will prevail until you change your term of business. You should issue your clients with the updated terms. You should be able to prove when each client has been informed of the change in terms.

Commercial Debt ManagementHow to start the claims process when an invoice is overdue. Contact your client informing them –

  • Which invoice is overdue
  • How much is due in terms of interest, compensation, and costs
  • How they should make payment

Finance Equation Ltd is a multi award winning chartered certified accountants. Call us on 020 386 7472 to see how we can make a difference to your business.

 

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