Late payment of debts - what rights do suppliers have?

Dec. 16, 2010 - PRLog -- If your business is affected by late payment of an invoice, thankfully there are ways and means of getting your customers to settle the invoice.

Firstly, you are well within your rights to chase payment of the invoice by sending a debt collection letter.  This often proves effective as it brings the late payment to the attention of the customer.  It also gives you the opportunity to warn the customer that you are considering taking further debt recovery action against them.

Interest and compensation
Payment of an invoice can often be accelerated by threatening in the debt collection letter to add a claim for interest and compensation.

If payment is late and it is a business debt, you are entitled to charge interest under the Late Payment of Commercial Debts (Interest) Act 1998, regardless of whether the contract with the customer gives you the right to claim interest.  This is 8% above the Bank of England base rate and currently stands at 8.5%.

In addition to charging interest, you are entitled to compensation of up to £100.  You should notify the customer and also issue a new invoice to reflect the additional amount.

You may also have a contractual rate of interest.  The rate can be higher or lower than the statutory rate but it must be considered fair and reasonable.

Of course, in the interests of continuing an existing business relationship, you may decide as a gesture of goodwill not to charge any interest or compensation and simply to claim the amount of the invoice in the debt collection letter.

Court action or statutory demand as part of the debt recovery process

If a customer still fails to pay, the next stage is to commence debt recovery proceedings or serve a statutory demand.

You can issue a statutory demand as part of the debt recovery process if the amount owed under the invoice is more than £750 and is not disputed.  If the invoice remains unpaid for 21 days after service of the statutory demand, you are then entitled to begin winding up or bankruptcy proceedings against the customer.  As this will have drastic consequences for the customer, the issue of a statutory demand may well be a sufficient incentive for prompt payment.  However, in the event of winding up or bankruptcy proceedings, costs can increase rapidly and there is still no guarantee that the debt will be settled, particularly if (as is likely) you are an unsecured creditor.  Contact Sean Moran on 0116 254 5454 to discuss your options.

Therefore, as an alternative, you may choose to issue a claim against your customer in the county court.  As debt collection solicitors, our website has details of our fixed fees..

Practical advice
As a starting point, send out a letter before action to your customer.
Adding interest and compensation can accelerate debt recovery.
Before commencing debt recovery proceedings, wherever possible, seek advice from debt collection solicitors.

# # #

Harvey Ingram solicitors is one of the leading law firms in the Midlands with offices in Leicester, Birmingham and Milton Keynes.We provide a comprehensive range of services to companies and private individuals alike.