It is a great feeling to make a sale or gain a new client. But what happens when the due date for payment comes and goes and you are left spending weeks chasing up invoices? Late payments can wreak havoc on cashflow, take up too much precious time and drastically increase stress levels.
Just this week in an interview with the Telegraph, successful businesswoman and TV personality Karren Brady, who is the Government’s Small Business Ambassador, was lobbying for more rules to be brought in making larger firms pay SMEs faster. She said it was “ethically wrong” for big business to damage the cashflow of smaller companies by taking weeks to make payments.
What legal rights do SMEs have when it comes to dealing with late payments?
Since late payment legislation was amended last year, in line with EU regulations, SMEs now have more teeth when it comes to chasing after money owed and charging fees when payment terms are not met.
Under the Late Payment of Commercial Debts Act 2013, invoices must be paid within 30 days after being submitted, unless a longer period has been agreed on. Payment terms must not exceed 60 days unless the supplier does not deem this duration to be “grossly unfair”.
How much are businesses entitled to charge late payers?
If payment has not been received within 30 days or within the period agreed, businesses can charge the following late payment fees:
- £40 for debt under £1000
- £70 for debt under £10,000
- £100 for debt over £10,000
It is also possible to claim for any additional costs incurred from taking actions such as hiring a debt recovery agency.
What is the best way to enforce these rights?
Outline the agreed payment terms on your invoice and add a line to say a late payment fee will be applied if these conditions are not met. It is always a good idea to send a polite invoice reminder around a week before the money is due.
Of course, there is always a chance genuine human error could lead to a missed payment and some leeway should be given when dealing with a one-time mistake – so long as it is rectified appropriately.
However, if you are dealing with a repeat offender, it is also worth considering avoiding their custom altogether in the future if at all possible. Sometimes the stress alone of dealing with endless late payments just is not worth it.