Don't let late payers get away scot free

Businesses throughout the UK and Europe have written off a staggering £245bn over the last year because of late payments. Alex Brooke-Smith explains some simple steps that will help firms recover money that could be vital to their survival.

It's surprising how many firms are prepared to write off debts than pursue them to enforce payment.

The debt buyer Intrum Justitia surveyed 6,000 companies across Britain and Europe and found that the amount of debt that had been written off rose by £24bn to £245bn over the last 12 months.

One of the reasons for this is that many businesses, especially smaller ones, feel they simply don't have the time or the expertise to deal with the problem. This obviously has a major impact on their cash flow and the overall health of their business, yet there is so much they can do with minimal effort if they are prepared to exercise their legal rights.

It's even possible to turn credit control into a profit making exercise because under the Late Payment of Commercial Debts (Interest) Act 1998, firms are allowed to charge interest on overdue invoices. This punitive charge is currently 8% above base rate. They are entitled to levy a statutory late payment fee between £40 and £100 depending on the size of the debt.

The extra money recovered in this way is often more than enough to cover the cost of pursuing the debt.

The first step may be to simply ask your solicitor to draft a letter requesting payment and outlining what action may be taken if the debt is not settled.

Most companies will pay up immediately when they see you are serious about exercising your rights but for more hardened cases, it may be necessary to initiate legal proceedings. This steps up the pressure even further and often results in payment before the matter gets to court.

Firms should be aware that they are protected from unilateral changes to contract terms such as when a customer suddenly decides that they are going to pay less than the amount agreed.

This can often happen with larger business customers who feel they can flex their corporate muscle and buying power. The supplier is entitled to insist on sticking to the original terms. This is basic contract law which cannot be overturned on the whim of one of the parties involved.

If one of your business customers does decide to pay less than agreed then you will almost certainly be able to claim interest on the outstanding amount and impose a late payment charge under the Payment of Commercial Debts (Interest) Act 1998.

You should be cautious if you are tempted to continue with contracts after you have received a letter from the customer informing you that they are going to pay less. If you go ahead and fulfil the order it may suggest that you have accepted the new terms.

Late payers put suppliers in a difficult situation and the dilemma is often one of balancing the need to be paid on time with the need to maintain a good relationship with an important customer, but for those who feel the time has come to act, the law offers a considerable level of protection.

For more information on Debt Recovery please contact Alex Brooke-Smith on 0115 988 6707 or email abrooke-smith@andersonssolicitors.co.uk.