The introduction of the Late Payments Directive on March 16th gives you new powers to chase overdue invoices – and makes it more important than ever to pay your own bills on time.
Gone are the days of it ‘not being worth it’ to chase for payment on an overdue invoice, however small it may be.
That is because, under the new legislation, any costs incurred in chasing a debt can simply be added to the total being claimed – effectively insuring creditors against the cost of the process, and putting pressure on debtors to settle in full more promptly.
The Good Side
For small businesses, this is clearly good news. The new legislation means all contracts are subject to 30-day payment terms unless otherwise agreed, and creditors should never end up out of pocket for chasing a debt.
You can charge statutory interest at 8% above the Bank of England reference rate (i.e. the base rate on December 31st or June 30th, whichever was the more recent).
You can still add the appropriate fee from the old three-tiered system – £40 up to £999.99, £70 from £1,000 to £9,999.99, and £100 from £10,000 upwards.
But now, if chasing the debt costs you more than that fixed fee, you can reclaim the remainder of your reasonable costs from the debtor.
If you have been reluctant to chase non-paying clients in the past, this is your chance to take a new, more hard-line approach to your accounts, and avoid leaving overdue invoices hanging indefinitely.
Even if you do not want to go to court over a relatively small invoice amount, it is worth writing to customers whose accounts are overdue and including a suitable sum of interest – the threat of extra charges to come should spur many of them to settle in full without further action being required.
The Bad Side
If you are in the middle of a busy supply chain, this new legislation means you’ll need to keep a closer eye than ever on your own cash flow.
Fail to pay on time, and you can no longer assume that your supplier will give you more time to pay; they would be well within their rights to pursue you immediately through the courts, and charge you the cost of doing so.
That means it’s no longer ‘safe’ to deal with interruptions to your cash flow by delaying payment on your own invoices – the cost of doing so could easily (and significantly) outweigh the benefit.
In short, it’s time to get serious about credit control, and treat others as you’d expect to be treated (and not simply how you’d like to be treated).
When a payment is overdue, that means chasing it with the full force of the new legislation, and adding the charges you are entitled to add.
In turn, this should ensure non-paying clients do not leave you out of pocket, meaning your cash flow situation looks healthier when your own bills come through the door, and allowing you to pay them on time and avoid any claims action directed against you.
Thanks to our friends at Safe Collections for providing this advice for Bytestart readers.
You can read the full details about the Late Payment Directive on the European Commission site here.
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