Dealing with Late Payments Quick Reference Handbook

If you’ve got an overdue invoice

(i.e. payment not received before the due date or 30 days since the invoice date if no terms agreed)

1-2 days overdue:

• Contact your direct client via email, to notify them the payment is overdue.
  • Keep things polite and professional - and keep records of your correspondence.
  • Ask if there is there is something preventing the payment being made.
  • If it’s an issue on your side (i.e. incorrect bank details), try to rectify it together, and consider 'resetting' the clock on when your invoice is due.
  • If it’s an issue on their side, ask for a date when the payment will be made.
• Contact the client’s finance or accounts payable department, notifying them the payment is overdue, and requesting a date when the payment will be made.
  • Doing this via email helps you have a record of communication
• If there’s no response within 24 hours, pick up the phone and try to have a conversation directly with your client or their finance team.
• If you've heard from the client and they have an excuse on why the payment will be late, make a decision on whether this is acceptable to you, and agree and confirm a payment date in writing. You are entitled to statutory compensation, even if you agree to a later payment.

2 weeks overdue:

• After 10 working days, contact them again via email or letter.
  • Explain that your invoice continues to be overdue, and unless paid within the next five working days (state the date in your communication), you’ll be charging interest and late payment fees, as is your right under the Late Payment of Commercial Debts (Interest) Act 1998.
  • You do not need to have included this in your terms or the contract - as you are entitled to these fees by law. Read the section the guide about your rights.

If you’ve unsuccessfully chased an invoice for over 30 days

(i.e. more than 30 days since the payment due date, or 60 days since the invoice date if no terms agreed)

• Decide how you want to escalate things. Consider your options, which include:
  • Charge the customer late fees and interest.
  • Speak to someone more senior in the business, to find a resolution and agree a payment date.
  • Contact the Office of the Small Business Commissioner to ask them to intervene.
  • Speak to a solicitor, who can help you send a "Letter before action" suggesting legal proceedings to recover the debt. Legal advice can also help you explore further actions, such as statuatory demands or winding up petitions
  • Make a money claim or seek a binding decision from a judge in court.
  • Pass your debt to a recovery agency.
• Communicate to the client the escalation actions you’re considering, and request a clear timeline for when they expect payments to be made.
  • Explain that you’ll be charging interest and late payment fees, as is your right under the Late Payment of Commercial Debts (Interest) Act 1998.
• Chasing money can be emotionally stressful, and take up considerable time - don’t forget to lean upon your support network, and automate the process where possible.

If your invoice has been paid late

(i.e. past the agreed payment due date, or beyond 30 days from the invoice date if no terms agreed)

• Decide if you want to charge late interest and surcharges, as is your right under the Late Payment of Commercial Debts (Interest) Act 1998, if your client is also UK based.

• If you’re going to charge the client, you'll need to provide them with a new invoice, detailing the interest and surcharge fees, due immediately, referencing the original invoice.

  Calculate the interest and surcharge, using the OSBC calculator, or this ready reckoner:

  Late Payment Interest:

  In the case of late payment, you are entitled to claim interest for the late payment without a reminder. This interest is calculated at 8% above the Bank of England Base Rate.

  For instance:
  If your business were owed £1,000 and the Bank of England base rate were 0.5%:

  - The annual statutory interest on this would be £85 (1,000 x 0.085 = £85)
  
  - Divide £85 by 365 to get the daily interest: 23p a day (85 / 365 = 0.23)
  
  - After 50 days this would be £11.50 (50 x 0.23 = 11.50)
  
  

  Late Payment / Debt Recovery Costs:

  The creditor (you) is entitled to obtain from the debtor (your client), a fixed charge of:

  - £40 (for invoices up to £1000)
  
  - £70 (for invoices up to £10,000)
  
  - or £100 (for invoices over £10,000)
  
  

• You can collect interest on a late payment up to a maximum of 6 years from the from date following end of contracted payment terms.
• It’s good practice to state in your terms and conditions and on all your invoices that you’ll do this, although you’re entitled to do it even if you haven’t said you will.