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As a one man limited company, working via an agency, or working direct with a client, you may at one time or another experience the joys of 'late payment'. Not only can this cause cashflow problems, but it can also lead to breakdown of your relationship with the client/agency if invoices are not paid on time. So, what rights do small businesses have when it comes to collecting unpaid fees? The Late Payment of Commercial Debts (Interest) Act 1998 gives small businesses the statutory right to claim interest on late payments from other businesses. This Act, originally introduced in November 1998 allows small firms to claim interest for late payment from large businesses (Over 50 employees) and public sector organisations. From November 1st 2000, this was extended to allow small businesses to claim statutory interest from other small businesses. So, when does a payment become late? Late payment starts from the date when the agreed payment period between the contractor company and the client/agency (as stated on your invoice). If not credit period was stated, the Act specifies a 30 day payment period after which interest becomes payable. The interest rate under the Act is the Bank of England base rate plus 8%. You are fully entitled to quote this on your invoices - something like: "Payment is due within 30 days of the invoice date. We reserve the right to claim statutory interest at 8% above the Bank of England base rate for late payment in accordance with the Late Payment of Commercial Debts (Interest) Act 1998." Despite the improved provisions for small businesses to claim late payment interest from larger companies, the main concern for many contractors is that they don't want to upset the client/agency and that chasing payment may damage their business relationship. ClearlyBusiness.com has a lot of useful information for small companies, including advice on the 'late payment issue' which is well worth reading, courtesy of Eversheds. In the first instance, most experts recommend chasing up the original invoice by phone or letter following the expiry of the initial (typically 30 day payment period). After this point, interest is chargeable under the terms of the Act. If settlement is still not forthcoming, a solicitor may need to be hired to write to the debtor (Eversheds charge £7.50 for a standard letter demanding payment and £75 for commencing legal proceedings). Dun and Bradstreet suggest the following debt tracking policy:
One way you can cut yourself out of the 'debt risk' cycle is to offload this responsibility onto a 'factoring' company - this is an increasingly popular method for contractor companies to manage their debts and improve their cashflow. A factoring company works by buying your invoices in return for up-front payment of an agreed percentage of the invoice value. Therefore, you effectively give the percentage to the factoring company, but receive the remainder up front. Further Links Previous Page
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