Late payment affects far more than cash flow. Every overdue invoice forces a business to finance its customers operations whilst continuing to meet its own commitments to staff, suppliers, HMRC and overheads.
When a customer fails to pay within the agreed terms, they retain the benefit of your money, whilst your business bears the financial burden. For many businesses, the cost of late payment extends well beyond the value of the original invoice.
Recognising the impact late payment has on UK businesses, Parliament introduced the Late Payment of Commercial Debts legislation, giving qualifying businesses additional rights when commercial debts are paid late.
For many years, NPD & Co has utilised the Late Payment of Commercial Debts legislation to help clients recover the costs associated with pursuing overdue accounts. The legislation is particularly effective because the additional charges arise under statute rather than contract, often encouraging prompt settlement once a debtor understands the potential consequences of continued non-payment.
Where appropriate, we encourage clients to make debtors aware of the potential charges that may arise if recovery action becomes necessary. In many cases, this alone is sufficient to secure payment without further escalation.
Where recovery action is instructed, the legislation can be used to transfer all of the recovery costs to the debtor. The principal exceptions are where a client chooses not to pursue those charges for reputational reasons or because they can recover those fees through future business.
The legislation provides a number of additional remedies that may be available when a commercial debt is paid late.
Depending upon the circumstances, these may include statutory interest, fixed compensation or reasonable debt recovery costs.
The legislation allows qualifying businesses to charge statutory interest on overdue commercial debts.
Interest is calculated at 8% above the Bank of England base rate and accrues daily from the date payment became overdue until payment is received.
For larger invoices or long-running debts, the amount recoverable can become substantial.
Despite being available under legislation for many years, statutory interest remains one of the most underused remedies available to UK businesses.
In addition to statutory interest, businesses may also be entitled to fixed compensation payments for each qualifying overdue invoice.
The amount depends on the value of the individual invoice:
Importantly, these amounts apply per invoice, not per debtor. Where multiple invoices have been paid late, compensation may be claimed on each qualifying invoice.
These amounts arise under the legislation and are intended to compensate businesses for the administrative costs associated with recovering overdue payments.
The Late Payment of Commercial Debts legislation recognises that the fixed compensation amounts may not always cover the actual cost of recovering an overdue debt.
Where the statutory compensation available is insufficient, a creditor may be entitled to claim reasonable debt recovery costs. Such costs must be proportionate, justifiable and directly related to the recovery of the debt.
The purpose of the legislation is simple. Businesses should not be left financially disadvantaged simply because they have been forced to pursue payment that should have been made on time.
One of the most effective ways of utilising the legislation is through the issue of a Late Payment Invoice.
A Late Payment Invoice sets out the statutory interest, compensation or debt recovery costs that have arisen as a result of late payment.
A Late Payment Invoice is often the first time a debtor becomes aware of the financial consequences of paying late.
In our experience, the issue of a Late Payment Invoice frequently results in immediate engagement from a debtor who has previously ignored reminders, statements and collection activity.
For many businesses, the Late Payment Invoice is not simply a legal document. It is a highly effective credit control tool. Faced with additional charges, many debtors choose to settle the outstanding balance promptly rather than incur further costs.
In some situations, creditors may choose to reduce or waive part of those charges in exchange for immediate payment, helping bring the matter to a swift commercial conclusion.
Unlike many debt collection agencies, NPD provides clients with live online case updates through NPD’s Credit Control Room portal.
Every action taken, every response received, and every significant development is recorded and uploaded as it happens, providing real-time visibility of recovery activity 24 hours a day.
The portal also enables businesses to create Late Payment Invoices, monitor debt recovery activity and access supporting documentation from a single online platform.
This provides a fast, cost-effective and compliant method of enforcing rights under the Late Payment Regulations.
Since 2001, NPD & Co has assisted businesses throughout the UK with debt recovery, credit management and late payment enforcement.
Our clients value practical advice, professional representation and a commercially focused approach built upon decades of recovery experience.
We understand that late payment damages cash flow, profitability and growth. Our objective is to help businesses understand and enforce their rights whilst recovering the monies they are legally entitled to claim.
If your customer is paying late, you may be entitled to recover more than the original invoice value.
Contact NPD & Co for a confidential discussion, and we will explain the options available, assess your entitlement and help you determine the most effective way forward.
Business risks include:
Unresolved invoices rarely improve without intervention.
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