Those of us running businesses could do a lot worse than take Mr Micawber's financial viewson board. Annual income twenty pounds, annual expenditure nineteen nineteen six, resulthappiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six,result misery.'
Over the last two years we have all experienced first hand or seen the painful impact of the recession. Despite the much-looked for green shoots of recovery, they are proving
remarkably coy and businesses are still going to the wall every week. The Government is
exhorting private employers to employ as many of those made redundant from the public sectoras possible. This may be a largely unfulfilled hope. Quite apart from the prohibitive costsof employing people, many private sector employers will be wary of taking on former publicsector workers (culturally they are very different). But that's a tale for another day.
Businesses must have income to survive and that comes from two places. The first is thesales effort. Clearly without sales we'll be in trouble. But it's often not the lack ofsales that kills off a business but poor cash flow. Good credit control is more importantnow than ever before. Legal remedies are the last resort as they are slow and expensive.Voltaire was reputed to have said, I was never ruined but twice. Once when I went to lawand lost and once when I went to law and won.' Even if you get judgement in your favour, there's no guarantee that you will be paid.
I have only sued a company for non-payment once, but several times I have filled out the
forms and faxed them to the office of a slow-payer to show how things are going (that works
quite well). Despite my litigious tendencies, I only recently discovered that you can
recover compensation for your time. It's something that every business should know.
The Late Payment of Commercial Debts (Interest) Act 1998 and Late Payment of CommercialDebts Regulations 2002 (the Act') gives businesses the statutory right to claim interest onlate payments owed to them by other businesses. It is intended to be severe, to encouragecommercial debts to be discharged promptly.
Under the Act suppliers have the right to:
claim statutory interest for late payment
claim reasonable debt recovery costs
challenge contractual terms which do not provide a substantial remedy against late
payment
Where you have agreed a credit period with your purchaser, payment is deemed to be late
after the expiry of that period. If you have not specified a credit period the Act
specifies a default period of 30 days after which interest will accumulate. If your
contract specifies that there is no credit period the main debt will fall due immediately
upon delivery of goods or service.
If the contract states that the whole price must be paid in advance, you can claim statutory
interest from the day after you deliver the goods or services.
You can simply tell your debtor verbally that you will claim interest, though it's always
best to confirm it in writing. Your letter should include the following:
Amount owed, including the total interest accrued to date.
The daily interest rate.
Details of the original invoice.
Full name and address to whom payment should be made.
Method of payment.
Some parties will agree specific interest rates or compensation in their contract. If so
the Act will not apply. To avoid larger companies abusing their bargaining power any agreedinterest rate or compensation for late payment must be substantial'. If they are not, theAct will apply instead.
Businesses in England and Wales have six years in which to make a claim for interest. If
your purchaser disputes the original invoice or the interest, be aware that it may end up in
the County Court.
Russell HR Consulting provides expert knowledge in the practical application of employment
law as well as providing employment law training and HR support services. For more
information, visit our website at www.russellhrconsulting.co.uk or call a member of the team
on 0845 644 8955.
Russell HR Consulting offers HR services to businesses nationwide, including Buckinghamshire(covering Aylesbury, High Wycombe, Milton Keynes, Bedford, Banbury, Northampton, Towcesterand surrounding areas), Nottinghamshire (covering Chesterfield, Mansfield, Nottingham,Sheffield, Worksop and surrounding areas) and Hampshire (covering Aldershot, Basingstoke,Reading, Farnborough, Fareham, Portsmouth, Southampton and surrounding areas).
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