Late payments - every self-employed person’s nightmare. From the impact it has on cash flow to the time and energy expended on chasing owed sums, it can be a thorn in the side at the best of times. At the worst, it can affect livelihoods. To help, here’s a guide to what you’re entitled to and how to recover any payments owed.
Late payments are governed by the The Late Payment of Commercial Debts (Interest) Act 1998 which allows you to claim interest and debt recovery costs if another person or business is late paying for goods or a service.
Crucially, you are still entitled to a late payment even if your invoice or payment conditions didn’t state it. Compensation against public sector organisations and businesses with more than 50 employees is available and you can also claim up to eight per cent ‘statutory interest’ plus the Bank of England Base Rate, on payments from other small businesses. The interest runs from the day after the last day the payment should have been received. You cannot however, charge statutory interest if the contract states an alternative rate.
If you agree to a payment date, it must usually be within 30 days for public authorities or 60 days for private business transactions. You can agree a longer period than 60 days for business transactions - but it must be fair to both parties. Late payment fees are then applicable if payment has not been received within these timescales. If however, you do not agree a payment date, by law, the payment becomes late 30 days after either:
The invoice is received by the customer/client
The goods or services are delivered (if later than invoice date)
Chasing a Late Payment
So, the worst has happened and a customer/client hasn’t paid you; now what? While a late payment may have come due, if it’s within a day or two, send your customer a chaser to politely remind them that payment is outstanding and late fees have now become applicable. A fixed ‘debt recovery’ cost can be claimed ( as defined by law) and depends on the amount owed:
|Debt Owed||Recovery Fee|
|Up to £999.99||£40|
|£1,000 to £9,999.99||£70|
|£10,000 or more||£100|
If you are a supplier, further ‘reasonable costs’ can be claimed each time you chase the debt.
It is within your discretion to waive or delay the fees and some do if it’s a first ‘offence’ or a new client and payment is made quickly after this reminder is given. This is known as a ‘grace period’ (i.e 14 days). If however, your polite chaser is ignored, reissue your invoice at the end of the grace period with the statutory interest and recovery fee included - this can be in the form of a second statement/invoice.
It goes without saying that all correspondence with customers/clients should be in writing, however we appreciate there are occasions when business terms have been agreed over the phone or in-person. In this case, ensure all chasers done verbally are recorded contemporaneously including the name of the date, time, person spoken to and what was said.
Most outstanding payments are settled by this point, if not, you need to consider taking the matter further and possibly to court.
If the debt is under £10,000 then you can apply to the Small Claims ‘Court’ for recovery of it. It isn’t a special court per se, rather a simplified procedure within the County Court. The application can be made online through the Government portal and you do not need a lawyer for the procedure, unless it becomes complex, but you will be notified if this is the case.
Before you get to this stage however, you need to send a Notice of Intention to go to court known as a Letter Before Claim. This notice has to be:
Sent via Recorded Delivery
Summarise the what has happened/the claim
The remedy you are seeking (i.e. payment)
Provide a set deadline for response/settlement
That you will issue court proceedings in the event of no response/settlement
If the customer or client does not respond or pay, you can proceed to make your claim via Form N1 on paper or online. Fees apply (and are £10 cheaper online) depending on the size of the claim.You can find out more here including information regarding assistance with fees if you are on certain benefits. If you win your case, you may be able to claim the application fees back, but this is not guaranteed. Some cases go ‘undefended’ which means you win by default.Be aware that applying to court is a last resort and mediation should be considered where applicable (the court can also order this once an application is made as part of the court fee). There is also no guarantee of success; only a legal representative will be able to advise you on the merits of your specific case upon reviewing all available documentation, but this is costly. If you lose the case, you may be ordered to pay the defendant’s costs, although these are usually limited.
Preparing the case and attending court
You will need to set out your claim in the application form space provided, which should be a chronological order of what has happened and include all relevant information - these are known as ‘particulars of claim’. This should be backed up by any evidence (i.e. contract, statement of work, emails and letters, or records of phone calls) and the names of any witnesses (i.e. people present in meetings where contract terms were agreed) and indicated in the form if they are attached or to follow.
The court will issue the application and serve it on the defendant. If the claim is undefended, you will be awarded what you seek, plus any costs (i.e. application fees) the judge sees fit. If it is defended, the judge will issue a Notice of Allocation and order additional evidence to be filed by both you and the defendant in time for a Final Hearing (usually 14 days prior) - the date and time of which will be specified in the Notice.
You are likely to be required to attend the hearing in person unless it is being conducted virtually or the judge dispenses with attendance. Read all the evidence filed (including your own) prior to the Final Hearing so it is fresh in your mind, as you will be required to present your case to the court. Do not panic or feel intimidated, civil court hearings are less formal than criminal cases and there is no jury - you should be calm and collected to ensure your presentation comes across clearly and so the judge can make a fair decision. At the end of the hearing, the judge will decide in either yours or the defendant’s favour.
If you are successful, the defendant will be ordered to pay a sum (possibly inclusive of costs) within a set amount of time. If they do not pay, there are procedures to follow to enforce the judgment - this again involves time and further cost to you but can include:
- Instructing court bailiffs to recover the debt
- Having the sum deducted from PAYE wages
- Putting a charge on property
- Freezing assets or bank accounts
If you are unsuccessful at the Final Hearing, you can consider an appeal, but there are limited grounds to do so and you may need legal advice before issuing one. This will also incur further costs which you should be mindful of, especially in the event the appeal is also unsuccessful.
Can you avoid going to court?
While you can’t guarantee the matter won’t end up in court, there are several things you can do to ensure that it really is the last resort and you get paid before it becomes necessary:
- Do background checks on a customer/client before commencing work and look for any reviews/references others may have given.
- Use a contract that clearly outlines the goods or services being provided and in the case of the latter, a Statement of Work. Also include when invoices will be issued, to whom and how they should be paid and by when.
- When issuing and sending invoices, do so regularly and after every piece of work if possible. Also use terminology similar to the following terms:
Payment terms are  days. Please be aware that according to the Late Payment of Commercial Debts (Interest) Act 1998, [name of payee] is entitled to claim a [insert amount depending on invoice amount] late fee upon payment of debts after this time, at which point a new invoice will be submitted with the addition of this fee. If payment of the revised invoice is not received within a further 14 days, additional interest will be charged to the overdue account at a statutory rate of 8%, plus the Bank of England base rate of [ ] totalling [ ]. Parties cannot contract out of the Act's provisions.
- Ensure all correspondence regarding payments (including late payments) is done in writing and use clear chaser templates that remove emotion but become progressively more forceful. Keep a record of everything.
- Use software with built-in invoice reminders or an accountant who offers this service. If you are a sole trader - join a union who can act on your behalf and chase payment.
- Finally, stop doing any work for a customer or client that does not pay (or withhold already completed work) and do not restart until all outstanding debts have been settled and the risk of future non-payment is minimal.
Hopefully the above will minimise the risk of not receiving payment for goods or services you have provided, but in the event that you are not paid, do not be afraid to take further action - free basic legal advice can be sought via the Citizens Advice Bureau. Remember, you are entitled to be paid for the work you do.
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