Late payment of commercial debts can hinder a cash flow of a business substantially, throwing the business itself into turmoil if one big customer is late paying their invoice.
The knock-on effects of one customer paying late are still underestimated. If your company is paid late, you could be paying your own suppliers late, causing them to pay their contractors late, and so on. Also, the longer this goes on, the more trouble it will spell for your business. You could be hit with late payment fees or interest, or even served court papers for failing to pay an invoice which could result in a CCJ. This would damage your credit score and could squash a lot of opportunities for future business ventures or further extended credit for your business.
So what can be done?
Fortunately for UK businesses the EU’s Late Payments Directive offers some power when it comes to late payments. The term Late Payment legislation refers to the Late Payments of Commercial Debts (Interest) Act 1998, the Late Payment of Commercial Debts Regulations 2002 and the Late Payment of Commercial Debts Regulations 2013.
The statutory right to claim interest and other compensation recovery costs and entitlements being made from 16 March 2013, are not compulsory and it is for the supplier to decide whether or not to use rights made available.
It is worth noting that adding in extra charges without prior warning could significantly damage your relationship with your customer, so if you are going to charge late payment fees; ensure they are made aware that this is a possibility when they sign the contract.