No matter how you're registered legally (whether a sole trader or as a limited company), you have rights when it comes to dealing with contracts and late payments.
There are a number of UK laws which aim to combat late payments - namely, the Late Payments of Commercial Debts (Interest) Act 1998, the Late Payment of Commercial Debts Regulations 2002 and the Late Payment of Commercial Debts Regulations 2013. Here are the headlines!
Generally when you agree to do work with someone, there will be a contract or terms in place - and often that will include payment terms. That contract is legally binding (providing there's nothing in there which goes against the law or is grossly unfair), so if you've agreed to 30 days, they're liable to pay you in that time.
The maximum period for payments is 60 calendar days (or 30 days if payment is by a public body). It could be longer if agreed explicitly in a contract and it that those terms are not grossly unfair to the creditor (that's you). As a supplier, you get to set your payment terms. Many large businesses will have different terms by default, and whilst you're not obliged to accept their terms, they aren't obliged to work with you either.
If the contract doesn't explicitly set payment terms or there is no contract in place, then 30 day payment terms apply, and by law, a payment is late 30 days after either the customer receives the invoice or you deliver the goods or provide the service (if this is later).
The creditor (you) is entitled to obtain from the debtor (your client), a fixed charge of £40, £70 or £100 depending on the size of the debt (under £1,000, under £10,000, and higher), plus additional reasonable costs incurred. Keeping it simple, they owe at least you an extra £40 if they're late, to cover your costs. This is a statutory entitlement, that means you have the legal right to do this.
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.
If your business were owed £1,000 and the Bank of England base rate were 0.5%:
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.
There are additional rights and options you have once your late payments have exceeded additional levels.
For instance, if you're owed over £750 and has been outstanding for 21 days, you can serve a statutory demand, and even petition that the company be liquidated! Who'd had thought that you had so much power!
But before you get to the point of crumbling late payers businesses between your almighty fingers, there's a handful of routes you should take first which we cover later on.
You have a legal right to be paid on time, and you have a legal right to charge late payment fees and interest. This is not a 'threat' but your right in law. Make use of it.
