Reducing your debt recovery costs

Introduction

The only real guarantee with debt recovery is that someone always has to pay up. Often those considering court action come to us concerned that the associated expenses of raising proceedings might outweigh their potential return. In no case is this more prevalent than with those who operate SMEs.

SME clients frequently express their frustration with the non-payment of what they perceive to be small debts. The common view is that behind every demand letter, there is no real substance in which to encourage late paying customers to settle up; non-payment of such being detrimental to tight cash flow margins. They can find it difficult to justify the cost of pursuing small debts where the mantra is “every penny counts”.

The Late Payment Rules

There are rules in place with the specific intention of encouraging prompt payment of commercial invoices. The Late Payment of Commercial Debts (Interest) Act 1998 inserts an implied term into qualifying contracts providing suppliers a right to claim not only interest from late paying customers, but also their reasonable costs in recovering the debt, which includes their pre-litigation legal spend.

When does this apply?

In order for a debt to qualify under the Act, the supplier and purchaser must be acting in the course of a business. In other words, a commercial contract for the supply of goods or services to a business entity e.g. sole trader, company or partnership etc. A good example would be a landlord under a lease of commercial premises chasing rental arrears from their tenant.

How can it benefit you?

If the debt qualifies, late payment interest accrues at a rate of 8% above Bank of England official dealing rate as at the 31 December or 30 June immediately preceding the rendering of an invoice. As of today’s date this allows creditors to charge 8.5% from the day after the agreed payment due date, or where no such date is agreed, 30 days after the later of the delivery/performance date or the date the purchaser is given notice of the debt.

Once late payment interest becomes payable a supplier has the ability to claim compensation for the costs they have incurred recovering the debt. This is in the form of a fixed sum and the maximum prescribed by the Act is £100. However another tier of compensation has been recently introduced. A supplier may now claim for any further reasonable costs which were incurred in recovering the debt which are not met by the statutory fixed sum. We have managed to recover sums in excess of £500 for our clients where otherwise they would have borne that cost.

Conclusion

We regularly assist our SME clients to recover late payment sums due to them. If your business is struggling to recover late payments from commercial customers our debt recovery team would be delighted to discuss options with you.

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For More Information Contact:
David Alexander
Mobile: 07841920089
Direct Dial: 0131 516 5362
Email:dalexander@gilsongray.co.uk

Scott Runciman
Direct Dial: 0131 516 5362
Email:dalexander@gilsongray.co.uk

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The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.