This Crab Alert applies to businesses pro actively trying to minimise the impact of late payments.
If someone does not pay you at the agreed time then they are in breach of contract and you are entitled to damages. A term may be added to agreements with clients and customers stipulating when payments become late and the amount and, or way that damages are to be paid.
With respect to business to business contracts only (including public bodies) you may rely on the late payments legislation, which gives statutory penalty charges. You do not need to tell customers or put the statutory penalty charges in your contract, but it is good practice to make it clear that they will be relied on. Penalties can be pursued for up to 6 years after they are incurred (5 in Scotland), however delays may be frowned on by the Courts.
When the original payment is received late, an invoice for the late payment penalty, interest based on the number of days after the due date and reasonable additional costs, if any, should be raised and sent to the client.
You will need to be able to prove the date of invoice; the payment terms and the date that payment was made (i.e. the date at which the recipient has control of, or responsibility for it).
You cannot raise a late payment penalty invoice on a late payment penalty.
Non payment of the original invoice or the late payment penalty invoice needs to be dealt with through the County Court.
This comes from the Late Payment of Commercial Debts (Interest Charges) Act 1998 and the Late Payment of Commercial Debts Regulations 2002 & 2013
How can Crimson Crab Help?
We can help businesses implement a procedure for managing late payments and help with recovery.
We offer a variety of solutions to help businesses with their compliance responsibilities >read more…
You may also be interested in F2 Business Huddle – networking with a purpose >read more…