A recent survey of 1,000 UK business leaders found that around 55% of small and medium sized enterprises (SMEs) in the UK are waiting for invoices to be paid from the previous tax year. A staggering 18% of these invoices were reported to be over 6 months late.
Unpaid invoices can have disastrous effects on the running of small businesses, especially in the current economy. Late payments affect cash flow, ability to pay staff and cover other outgoings. In fact, 38 per cent of small business owners surveyed explained that they may have to reduce their overheads, whilst 28 per cent paused recruitment and a fifth froze planned pay rises.
It is therefore so important that businesses are aware of the legislation surrounding repayments. Many companies are unaware that they are entitled to charge interest of up to 8% plus the Bank of England base rate for business-to-business transactions under the Late Payment of Commercial Debts (Interest) Act 1998.
Small business owners can charge interest if the debt is incurred in the course of running a business and supplying goods or services. The interest can usually be claimed from the agreed contractual payment date, or 30 days after the sum became due, at a rate of 8% above the Bank of England base rate (unless the Terms and Conditions of the contract say otherwise). Interest can be claimed for up to 6 years.
A small amount of compensation can also be claimed for the cost of having to recover the debt. This depends on the invoice amount but ranges from £40 to £100.
The survey found that despite the above, very few companies claim interest on late payments. One reason for this is ignorance of legislation, although some worry that it might spoil business relationships. Therefore, it can be useful for companies to take legal advice in order to understand their legal position and weigh up the options.
If you would like some advice as to how to go about commercial debt recovery in a cost-effective manner, we are happy to assist. Our lawyers specialise in helping both small and large businesses to recover the money that they are owed, along with interest and compensation. please call 0845 287 0939, send an email through our online contact form, or use the online chat below.