When does an invoice become legally overdue?
The first step is determining when a debt becomes overdue – so if your invoice includes agreed payment terms, such as 30 days from the invoice date, the debt becomes overdue the day after that deadline passes.
Your right to claim interest and compensation
It is important to make the debtor aware of any late payment penalties imposed by your company’s terms and conditions, if any.
Under the Late Payment of Commercial Debts (Interest) Act 1998, you can also can claim statutory interest on qualifying commercial debts – this is currently 8% above the Bank of England base rate. This interest accrues daily from the date the invoice becomes overdue until payment is made.
In addition to statutory interest, businesses may also be entitled to fixed compensation for the costs associated with recovering overdue debts against other businesses.
The current compensation amounts are:
- £40 for debts up to £999.99
- £70 for debts between £1,000 and £9,999.99
- £100 for debts of £10,000 or more
If you are unsure what you are entitled to claim, you should seek advice as soon as possible so the correct figure can be placed in your correspondence and demands.
Consider your next steps
Before jumping to litigation, if the debtor is cooperative, you may be able to reach a settlement, depending on the type and value of the debt. It is important to ensure all discussions and settlement terms are in writing. You may need a settlement agreement if a settlement is reached, depending on the nature of the debt and the settlement terms reached.
If reminders and informal communication have failed, you have the right to take formal steps to recover the debt.
Depending on the value and nature of the debt, you can consider whether to instruct a debt recovery agent, send a letter before action and issue court proceedings or, in some circumstances, a statutory demand may be suitable.
If a judgment is obtained and remains unpaid, further enforcement options may be available depending on whether the debtor is a company or an individual, including), enforcement agents, insolvency, charging orders or attachment of earnings orders.
To protect your position and support any future recovery action, it is important to act quickly and maintain accurate records, like contracts and agreements, invoices, emails and payment reminders.
The stronger your documentation, the easier it is to demonstrate that the debt is valid and enforceable.
Although legal remedies are available, preventing late payment is always preferable. Try and be clear from the outset what your payment terms are and carry out credit checks on customers where feasible. Make sure you’re invoicing promptly and follow up any that are overdue as quickly as possible.
For more information or advice, contact Downs Solicitors to see how we can help.
Contact Lucy Penfold
