Late Payment Compensation for Businesses
Late Payment Compensation for Businesses
Businesses of every type in the UK, regardless of sector, must face issues with late-paying clients.
This is far from an uncommon experience, with almost every business having many cases of debt.
Most businesses take proactive measures to reduce the number of cases relating to late payment of commercial debt.
For instance, setting up payment terms before any agreement is an excellent measure.
These should include details on the client’s obligation to pay you, as well as details on and late payment interest charge.
A business’s cash flow is its lifeblood.
If invoices are not paid and payments are not consistent, it can be a big issue.
Adding a late payment charge to a commercial invoice is a very effective way to ensure that clients pay their bills on time.
If a client holds back on the payment, they risk having to pay a charge with interest on top of what they already owe.
Federal Management is the UK’s leader in commercial debt collection.
Our teams of debt collection agents collect thousands of pounds worth of debt for businesses across the country.
We asked our commercial debt collection experts to outline what a business can do to ensure that people pay their invoices on time.
Late Payment Compensation – How to Prepare
The best way to prevent bad debt from occurring is to do everything possible to make sure it doesn’t become one in the first place.
Clients will always try to wait until the last second to pay their invoices, this is a normal part of the modern business world.
Making sure that they don’t go beyond the due date is a simple task to do.
Dealing with Late Payment of Commercial Debts
For many business owners and credit control teams across the UK, late payment of invoices is a daily occurrence.
Knowing how to deal with this is a key factor of the recovery process.
You are able to charge a standard late payment interest rate set by the UK government.
According to gov.uk:
“The interest you can charge if another business is late paying for goods or a service is ‘statutory interest’ – this is 8% plus the Bank of England base rate for business-to-business transactions.”.
The ability to add late payment compensation to payment terms and invoices is an excellent incentive for clients to pay their bills.
Failure to do so will only result in the accrual of more interest.
This would only make the situation more costly for the debtor.
As such, this is a very effective way to make sure that people pay bills and invoices on time.
As well as this, many businesses also have a clause in their payment terms that can charge for compensation in the event that a payment is late.
This is usually dependant on the net value of the invoice in question.
For example, for payments up to £999.99, the creditor could receive £40 from the debtor. For debt between £1,000 and £9,999.00, the creditor is entitled to £70.
Setting up late payment compensation costs is another good way to help ensure that prompt payment is not an issue.
You can claim this as soon as you declare the payment overdue. Note, creditors have up to 6 years to do so.
Late Payment Compensation – How To Claim
If you wish to claim back any late payment charges, the first thing to do is make a written demand to the purchaser.
If you have made careful preparations, such as creating and agreeing on payment terms, then the debtor will already know this.
You should record all communications and should be professional and polite in tone.
Approaching the debtor in an aggressive or confrontational manner is not recommended. Doing this may make the situation worse.
If you have had to attempt to claim late payment compensation and the debtor is not complying, then it is better to escalate the matter.
Whilst it is an option to continue negotiating with the debtor alone, this can lead to a lot of wasted time and money.
Hiring the services of a solicitor is also an option, as court action can ensure that you can reimburse any late payment compensation.
The downside with this is that often court proceedings can take a very long time to work through, in some cases years.
As well as this, solicitors can be expensive. As their time is very valuable, most solicitors charge a lot (for example, £200 per hour) for their services.
With many court cases lasting months or years, the cost can mount up, and in some cases can outweigh the value of the debt itself.
The preferred option for recovering late payment compensation, as well as the total amount of the debt is to instruct a professional debt collection agency.
Instructing a Professional Debt Collection Agency
Whilst there are other options, a professional debt collection agency will provide the best way to recover an unpaid invoice.
Federal Management is the UK’s leading commercial debt collection agency.
Since 2004, our teams of expert debt recovery agents have helped businesses recover thousands of pounds worth of debt every week.
For more information on how we can help your business recover late payment compensation, speak to us today.