Interest on outstanding invoices
Article Date: Nov 24 2008My husband is a sole trader and subcontracts from a big company. We have outstanding invoices – some as old as over 300 days. Can we charge interest on them until they are paid?
Under the Late Payment of Commercial Debts (Interest) Act all businesses, irrespective of size, can claim statutory interest for late payment of commercial debts as well as the reasonable debt recovery costs.
The key issue will be whether there is an agreed credit period, either in writing or orally. If no credit period has been agreed, then the Act sets a default period of 30 days.
If your husband intends to make a claim he should inform the purchaser that he is claiming interest on late payment under the legislation. This should be in writing. It is necessary to provide all the information that should be carried on a standard invoice:
• To whom payment should be made
• By what date
• To what address
• By what payment method, e.g cheque, electronic transfer, etc…
The Act specifies the rate of interest which can be charged based on the Bank of England base rate at six monthly stops, plus eight per cent.
The Better Payment Practice website gives information on the Act. In the Late Payment Legislation section there is a useful document – A User’s Guide to Late Payment Legislation, which gives an example of how to make a claim. It is important to fully comply with the legislation because if the company refuses to pay the interest you can pursue the claim through the courts.
A word of caution is necessary. In these difficult economic times, many firms are laying off contractors. Before your husband goes down the path of charging interest you should decide whether he is risking the company by deciding not to continue his contract.
In any event, it might first be wise to ensure that the company does not have any reason to delay payment such as problems with the invoice details. Your husband might be advised to talk to the company about its payment performance and see if there is a way for them to improve it. The result he is after is to get the payment performance back to a period which is acceptable to him.
The businesslink website also provides helpful advice on late payment.
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