When you can use the Late Payment legislation

Many businesses are reluctant to use the Late Payment legislation as a routine part of their credit management procedures. There is a fear of upsetting their customers and jeopardising future business. There are, however, a number of other ways in which the law can be applied and one or more of these could still be appropriate for your business.

as a deterrent

Consider adding wording, to all relevant correspondence to warn customers or potential customers that you may use the Late Payment Law to collect interest and compensation. You might include such wording on quotations, order acknowledgments, invoices and debt collection letters.

as a threat

During your normal credit management process you might notify customers that you will make use of the legislation if you do not receive payment. You could even work out the amount (using our calculator) and warn them how much it will cost.

as part of a court claim

If you have decided to take a customer to court, you probably are no longer worried about losing future business from them. In which case you might as well add a claim for interest. It gives them an incentive to pay sooner rather than later.

You can also add a claim for interest on older payments that were paid late (see below).

retrospectively

The legislation is not limited simply to collecting interest on outstanding overdue debts. You may also use it to collect interest on debts that have been paid but were paid late. You can go back up to 6 years (5 in Scotland). However you cannot go back before the date when the legislation was introduced.

You might choose to wait until the customer has ceased to be a customer or you are being forced to take legal action anyway; and then send them a demand for all the interest/compensation on all of the invoices that they failed to pay on time.

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