What type of firms can I apply the late payment legislation to?
The legal status of the business you are seeking to claim interest from is irrelevant. Therefore it can be a sole proprietor, partnership or limited liability company. However you cannot apply the late payment legislation to personal debt.
Our website contains all of the details you need in relation to how you apply the legislation:

What if a customer has more than one overdue invoice? How do I claim these multiple debts?
If each invoice relates to a separate order for goods or services, then you are entitled to claim compensation on each overdue invoice. If they are invoices raised to chase the same debt, then you can only claim one amount of compensation.

It is possible to add together several claims for compensation and late payment interest in one claim. If you do this, you should calculate each individually and set them out in writing so it is clear which claim relates to which order.

You should not issue an invoice for the interest and compensation - you put your claim in writing. The BPPG has a guide on the legislation, which contains a section on how to collect interest/compensation.

Interest accumulates on a daily basis, so the longer the debt is unpaid, the more interest racks up. If your claim for interest remains unpaid, then you need to write again, to chase, explaining that interest is continuing to accrue. We can also help you with the letters you need to use in this instance, by clicking on this link.

Can I claim compensation for debt recovery costs and VAT, as well as late payment interest?
The right to compensation for debt recovery costs was introduced for contracts dated on or after 7th August 2002. This can be claimed alongside the statutory late payment interest.
Businesses are entitled to claim compensation when a debt remains unpaid after the date specified on the contract, or in the absence of a contract, 30 days after the delivery of the goods or service.

The claim for compensation is made to the debtor, together with the claim for interest.
VAT is not added to the compensation charge or on the interest.

Please also note that businesses with their own contract terms for late payment interest forfeit their right to use the late payment legislation.

How do I deal with collecting late payment interest when the invoice has been partially settled?
In legal terms, interest continues at the 'daily rate' on the whole of the outstanding debt.
Charging interest is designed to be a spur to payment. You should use the interest charge to encourage the debtor to pay on time i.e. explain to the debtor that they can avoid these extra costs if he/she pays according to terms.

Do I have to notify a customer of my intention to charge late payment interest and debt recovery costs?
It is not necessary for a customer to have been notified in advance of the intention to charge late payment interest and compensation and you do not have to refer to it in your contract.

Should I sue for late payment interest?
It is important to note that you do not need to go to court to claim late payment interest and debt recovery costs. You have a statutory right to both and these should be paid with the principal sum by the debtor.

It may not be necessary at this stage to threaten your debtor with Court action, as the reality of an interest charge and compensation bill may be enough to prompt your debtor into responding to your calls and hopefully paying your invoice. It is advisable that you think carefully before deciding to pursue the debt through the court and that you avoid issuing threats that you do not intend to act upon. We recommend that you have a look at the guidance provided on the Court Service website to help you decide whether court action would be appropriate if payment is still not forthcoming after the debtor receives notification of the interest and compensation due. The Court Service website is worth looking at to help you through this.

Another source of help you could turn to for advice on taking the debtor to court is the 'Lawyers for Business’ scheme, which will offer you contact details of a solicitor who can provide 30 minutes free legal advice. Their number is 020 7405 9075.

We also recommend that you view the guide to the Late Payment Legislation on the BPPG's website,

You may also be interested in the BPPG's series of sample invoice and reminder letters that are freely available.

I don’t have a contract with my customer. Can I still claim late payment interest and compensation?
It is possible to claim interest on overdue invoices even if you haven't agreed a formal contract. However, the key thing about credit terms is to agree them up front before trading with any other business, to help you get paid more quickly and avoid misunderstandings. Credit periods should be made clear to the customer, ideally well before invoicing stage.

How do I credit check a company I wish to do business with?
There are many ways you can do this including obtaining bank references, trade references and obtaining company accounts. In addition there are companies that can provide you with status reports on companies for a fee. Your first port of call should be The Credit Services Association website. This contains the contact details of its members and an index listing of the type of services that they provide, for example tracing or status reports. Status reports should contain full customer details, financial results, payment experience of other suppliers, county court judgments, registered lending, etc. and a recommended credit rating. Agencies deliver instant reports through on-line terminals as well as by post or fax.

All of the ways available to you to undertake credit vetting can be found by clicking here.

A customer is refusing to pay. What should I do?
If a customer 'refuses' to pay you, it is important to establish why, rather than immediately seeking to sue the debtor. It could be that they are disputing the payment, in which case the onus is on you to resolve the dispute.
You should write to whomever the commercial contract is with to acknowledge the outstanding payment. Please use our template letter that you can adapt to suit your situation.

If the customer ignores your letter (which you should chase up with a phone call), has not disputed your invoice and has no justifiable reason for withholding payment, then you could appoint a third party to pursue the debt on your behalf. You can also consider recovering the debt through the County Court. If you opt to go through the County Court and the debtor ignores the claim, you should think about applying for a judgment. The Court Service website will provide with lots of useful information in the situation.

If a judgment is obtained, it may be necessary to take some enforcement action. Such action may include an application for an order to obtain information from a judgment debtor, a third party debt order, or instructing the Court Bailiff or the Sheriff.

An order to obtain information from a judgment debtor brings the debtor before the Court to be examined under Oath, by the Court. A third party debt order is a way of obtaining money that is owed to you. If the debtor has money in a bank account, or a building society, the bank or building society can be ordered to pay the money over.

I need some effective letters to use if my customers do not pay on time.
You may find our template letters helpful:

They take you through all the stages of chasing payment right from the setting up of the account through to legal action.

What wording should I use on invoices to display my intention to charge interest if I am paid late?
You need to add the following wording:
We understand and will exercise our statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to agreed credit terms.
You should also consider signing up to the Better Payment Practice Code. This means you can put a logo on your invoices that indicate that you pay (and expect to be paid) promptly.
Follow this link for more details.

A customer is not paying me and is saying that I am harassing him for the payment. What shall I do?
The issue of harassing a debtor is governed by Section 40 of the Administration of Justice Act 1970 which makes it an offence to harass a debtor and describes harassment as contacting the debtor in a manner or frequency which is unreasonable.

What is considered unreasonable is difficult to define and it may be that a court is asked to decide this. As a general guideline, if calls are made too often or at unreasonable times of day (generally considered to be before 8am or after 9pm), that would be harassment.

If a debtor has asked a creditor not to telephone, there is a risk that continuing to do so might constitute harassment.

One of my business customers is going into liquidation. How do I collect what I’m owed?
Your first step should be to contact the receivers. When a company goes into administration then receivers are appointed. It is their responsibility to distribute any funds to creditors, if there are any left. You should ensure your claim is lodged. Once you get in touch with them, request a Proof of Debt Form. The receiver may well be aware of the debt and you may likely receive a letter and form from the receiver in due course anyway. Unfortunately, if the debtor is insolvent you are unlikely to recover your money. If the debtor can only repay a portion of the total debts owed, then a pro-rata distribution would be made.

You may want to visit the insolvency service website for help.

What do I do when a customer disputes an invoice and won’t pay it?
A disputed invoice is one that the customer has queried, or refuses to pay all or part of for a given reason.

On the occasions when a customer queries one of your invoices, it is vital to ensure that you have a method in place to acknowledge, investigate and reply to that query quickly, so that delay in the payment of the outstanding invoice is avoided. Whatever the reason for the query, the onus is firmly upon your organisation to resolve the problem - fast. Otherwise the customer will feel perfectly justified in withholding payment of all or part of the relevant amount until your system gets itself sufficiently organised to respond to the point.

On the assumption that the query or complaint does not relate to the entire balance due, you should remind your customer that there is still a balance owing to your organisation which is not in any way connected with the queries raised. This letter should be personally addressed to the person raising the query and should set out your account number, an order number, and remind your customer of the balance due. The effect of this letter is therefore twofold.

It gives the customer a sense of receiving an additional prompt, efficient service and at the same time it gives little or no leeway for delay or non-payment of balances that are properly due.

As far as your internal procedures are concerned, it is important to communicate the status of unsatisfied customers to other relevant internal departments. All relevant parties should be furnished with full details of the customer, his or her account number, the relevant credit limit, the current balance due, the date the query was received and details as to its exact nature. The information should also include the deadline by which a response must be given to the customer. With that information in place, you will be in a position to reply to the customer’s query or complaint either by negotiating some form of discount or allowance on the invoice delivered, or by delivering a letter to the customer in response to their query. This letter should quote the relevant account number and the balance due and set out your company’s version of events in a way that is designed to deal conclusively with the query raised.

If I am claiming interest on a debt that spans one year and there has been four changes to the base rate in that period, what base rate do I use, is it a combination of all four or just one,. i.e. the base rate when the debt started to accrue?
For contracts dated 7th August 2002 and onwards, businesses are entitled to charge 8% above the reference rate that is in place on the day the debt becomes over due.

The reference rate is set for six month periods, so the Bank of England base rate that is in place on the 31st December will be the reference rate for the period 1st Jan - 30th June, and the BoE base rate that is in place on 30th June is the reference rate for 1st July - 31st December.

For instance as at 30th June 2003, the BoE base rate was 3.75%. This means therefore that for the period 1st July 2003 - 31st December 2003, businesses will be able to charge 11.75% late payment interest.
There is no need to adjust your interest rate if base rate moves - you use the one in place when the debt becomes overdue. See page 16 of the legislation guide in PDF format by downloading it from here.

It should be noted however, that if the contract predates 7th August 2002, interest is charged at 8% above the BoE base rate that was in place on the day the payment became overdue. This also means that if the contract predates 7th August 2002, then there is no right to compensation under the late payment legislation either.

The calculation can be done via an online calculator which is located here, which may be easiest method.

We don't have any Terms and Conditions of Sale yet, although this is on our 'to do' list. We simply can't afford the solicitor fees for this at the moment. Do you have any standard terms and conditions?
The advice from the Institute of Credit Management regarding standard terms and conditions is it is difficult to suggest an 'off the shelf' solution. What they did advise is that you find examples in your industry, construct your own and then get a solicitor to check them. This will cut your legal bill considerably. However, there are some standard points that any set of terms of trade should cover. Details of these can be found by clicking here.

Our customer told us that they no longer issue cheques. They insist on paying by BACS. We have not been informed of this change of policy. Is a company allowed to dictate what method they will pay by?
In our experience, BACS can prove to be an aid to being paid on time, since the payment is done by bank transfer. It could be that they are trying to improve their payment system. Our advice would be to telephone them and find out why they have made the change. Remind them of any invoices overdue and ensure that they arrange to pay them immediately via BACS. Finally, ensure that you give your customer your bank details in order that they can initiate the bank transfer.

Over a period of months, we have erroneously charged the wrong amount to a customer. Can they refuse to pay the correct amount?
If your contract clearly states the correct amounts to be charged then it is worth meeting your customer to see if you can amicably resolve the situation. If the customer refuses to make payments to adjust the error then you should seek legal advice on this. As the BPPG are not legal specialists, we recommend that you seek legal advice to clarify your position. You can do this by contacting 'Lawyers for Your Business', who will offer you contact details of a solicitor who can provide 30 minutes free legal advice. Their number is 020 7405 9075.

In the event of a dispute as to whether the supplier’s or the customer’s terms of trade are relevant to a contract, who is right?
We are not legal specialists and it is important that you seek legal advice on this issue. There is a precedent known as 'Battle of the Forms' that states that the terms which apply to a contract are those which are agreed by the parties at the moment in time when agreement to sell and to buy is reached. It is therefore important to establish the chronology of which terms were presented last.

How do I record late payment interest and compensation in my accounting records for tax purposes?
Late payment interest and compensation are chargeable as 'interest received' (for the late payment interest) and 'other income' (for the compensation received) within the accounts.

Both the late payment interest and compensation are taxable as they are derived from extra costs which you may have incurred.

For any payments that are made, these would be recorded as interest charged within the accounts.