Late Payment Compensation

[seymourSP]

I have an outstanding invoice from December.

Initially I gave a quote on what the client asked for, however, on inspecting the site, it was completely different to what the quotation was based upon.

I raised a second invoice for the additional work, and asked that full payment was made on the first invoice (approx £235.00), which they did... eventually, and I agreed that once this had paid, I would allow the 2nd invoice (£117.50) to be on credit, strictly 21days.

They have paid off some of the balance but still their is a balance of £57.00... whilst it isn't much, this client is getting use of their sign & menu, thus raising income, but still has not paid for the thing!

I have sent letters, statements, and have had numerous promises of payment that have never materialised. I am now extremely frustrated with the customer.

My T&Cs are quite comprehensive, and I could remove the sign in question, but would not achieve much as I cannot re-sell it, and would cost more to remove than the debt is worth! My T&C's state I can charge interest, but does not state any rate, so I am looking at charging statutory interest (8.0% + base rate), and possibly claiming compensation under the late payment act. I believe I can claim £40.00, but feel this is excessive, and would probably charge £20.00, just to cover the messing around I have been doing.

Do I charge VAT on the Compensation charge, and will I need to issue a separate invoice in SAGE for this?

I have configured SAGE to sort out the interest, and I am now just waiting for a response to my last letter.

Has anyone any experience of making such claims, and is it effective?

[termsandconditions]

I suggest that you don't send the invoice for late payment interest just yet. Send one last letter in view of all the chasing you have done already. In that letter, point out your legal entitlement to both late payment interest at the rate you stated AND the admin charge. Add that unless you receive payment in full of the outstanding invoice to date, you will send them another (VAT free) invoice in the sum you have calculated (including the additional 7 days' of interest).

Do your comprehensive terms and conditions also indemnify you against debt collection agency and legal costs in case of default? If so, then add these potential amounts in your letter too.

Most creditors shy away from charging late payment interest as they fear losing a client. The above route allows you leverage this statutory entitlement without actually billing the debtor if you decide against it.

If the above doesn't work, there are other levers you can pull so keep us posted won't you.

Best Regards

[seymourSP]

I have already sent numerous letters, and the last one did highlight that additional charges may be applied if payment is not received in 7 days.

To be honest, this client wouldn't be a loss to my business, and I am eager to get the outstanding balance, as I am not confident they will be trading much longer than 6 months.

I may call in and explain to them, that if they do not make payment then I will have no other option than to charge interest and admin fee.

I usually blame the bank manager/accountant for such things... tell them they have instructed me to do this.

I think the additional charges will prompt payment... I am not sure what other route to take?

[termsandconditions]

At the moment this is your main source of leverage. This is because the size of the debt is quite small and the debtor might just laugh at you if you say you're going legal because of the relatively high fixed claim costs.

It's too small for a debt collector to be interested although I could be corrected on this.

So whether you call or write, mention the amount of your calculations (of both interest and admin charge) which shows intent and purpose. You might cheekily add that the current amount plus the late payment charges in total would probably make it worth your while to shove in a court claim. So now your debtor can see your motivation as well!

Best Regards

[seymourSP]

Been to see the business in question, and explained that it is now overdue, and that it needs to be settled.

I got the usual sob story, but received a small payment. Not even 1/2 of whats outstanding, which is still frustrating, as it is getting carried on, and on, until I get the full amount, and I only get paid when I go and visit them.

I think another letter is required, as you said, outlining the costs if they were to not pay immediately.

[termsandconditions]

Part payment! That's a positive result in my book. I personally would have held out for the full amount as it dilutes the impact of your late payment calculations a bit.

So, yes, send the letter as suggested now and in 7 days pop in again WITH the invoice for late payment & charge. Then you have the following choices:

1. Accept payment in full for the original amount and tear up the late payment invoice (so long as they have cleared funds to give you).

2. Accept payment in full for the original amount plus the late payment invoice
marked 'for immediate payment'.

3. For part payments offers by your debtor, you can either refuse these point blank and state you expect payment in full right now for the original amount or the original amount plus the now current late payment invoice.

4. Or accept a payment plan for the balance plus the late payment calculation over a maximum period of two/three weeks subject to them giving you a note in writing there and then what they will pay you.

Your rights to late payment interest and charges and your personal visits are your represent your 'big stick'. Just use them creatively for maximum effect as each debtor is motivated differently.

Best Regards

[Geoff T]

Part payment! That's a positive result in my book...

Couldn't agree more John - good post:)

[seymourSP]

They still haven't paid the remainder of the balance, and will now require another visit.

Meaning more time out of my day! It's really getting to me.

Also sent a statement to another company, who still haven't paid. I rang them last week, and they tell me that they have received the statement but don't have the invoice. I have e-mailed an invoice over.

But why not contact me sooner (The statement was sent 2weeks ago!) and ask for a copy. This debt is again due from Christmas!

If I was to charge interest and compensation, do I raise a separate invoice in sage to each client, and then follow the standard charges routine in sage? Or do I wait until they do pay, and then calculate the interest on the account, and invoice them separately?

[johncor]

I'd say for the amount of money involved you should put it down to experience. Is is really worth spending your time like this to chase £57?

[seymourSP]

Yes it is worth chasing £57.00.

£57.00 to my business will buy me 1 tank of fuel to last 3 days running around visiting clients.

£57.00 is 1/2 the total cost of this clients menu board, which she is reaping the benefit of without paying for.

I visited her the other day, and handed her a letter, notifying her of what I will charge if she does not make payment.

After a heated debate, and me explaining that I am entitled to charge interest, and claim my £40.00 compensation, and it was explained in my terms and conditions, which she has signed and agreed to. She suddenly decided that she will pay the balance off there and then.

Rather than keep pursuing her for the sum owed I would simply go and remove the sign. I could easily re-use the materials and probably re-sell them for more than what was owed, but I would have the inconvenience of going and removing the sign.

To some companies I suppose £100.00 is nothing, whilst to a small sole trader, who has only been trading a few months, every penny counts.

The company who's equipment I have bought, and happen to trade from their old premises got a reputation for being cheap and a push over, and this certainly something I have addressed from the start. They have installed signs costing over £800, which have magically disappeared and nobody to chase for the debts.

I now do not issue credit to individuals. Companies require to pay in full with their first order, and will be expected to pay deposits on all future orders to cover the cost of what I have to pay for the materials.

[termsandconditions]

...After a heated debate, and me explaining that I am entitled to charge interest, and claim my £40.00 compensation, and it was explained in my terms and conditions, which she has signed and agreed to. She suddenly decided that she will pay the balance off there and then...



Good for you. This is one of many ways a good set of terms can work for a business like yours. You don't have to implement every single clause in your client agreement but they are there for your protection especially if you leverage them in they way you have done.

Best Regards