Can I set up a 25% one-off fee for late payment on my quotes?

Discussion in 'Legal' started by Acejlari, Jul 11, 2019.

  1. Acejlari

    Acejlari UKBF Newcomer Free Member

    18 0
    Hi the Experts, I'd like to know, if I'm allowed before agreeing any work with a client, to set up a 25% penalty of the total amount if the client pays after the payment due date. I clearly mention this information in my quote.

    In fact, I have some doubts because the Law mentions that we cannot charge over 8% interests for late payments (gov website, page title: late commercial payments: charging interest and debt recovery). However, it mentions that interest and debt recovery costs can be claimed if payment terms haven't been determined clearly, but nothing is saying about if it's legal to set it up on a quote or a contract.

    What do you make of it? Thanks in advance for your help.
     
    Posted: Jul 11, 2019 By: Acejlari Member since: May 24, 2018
    #1
  2. intheTRADE

    intheTRADE UKBF Contributor Free Member

    93 14
    Add the 25% to your original quote and then say they can get a 25% discount if its paid earlier by X date
     
    Posted: Jul 11, 2019 By: intheTRADE Member since: Apr 14, 2019
    #2
  3. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    10,544 2,132
    I would suggest you just don't bother with discounts for making payments as just not worth the problems with people arguing they still want the discount regardless of when they pay and also it make you look like you could have charged a lower price in the first place

    Credit if you must , is something you need tight rules for, like stop all orders is the 30 day payment terms are passed then automatic stop on any more orders until its paid, don't forget the customer wants your product or service and presumably likes your company, its just the accounts department who are making the delay, be it because they can or because of their cash flow problems

    As far as i know we never lost a company by putting them on hold, but did get payment very soon afterwards. Try and get customers to use the company credit / debit cards
     
    Posted: Jul 11, 2019 By: Chris Ashdown Member since: Dec 7, 2003
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  4. Darren_Ssc

    Darren_Ssc UKBF Regular Free Member

    419 85
    Not qualified to answer but, from my previous time in construction, penalties are not enforceable. Unliquidated damages are.

    In other words, if there is a cost incurred you can enforce it. AFAIAA, it is common for some organisations to send a letter and charge you £12 to cover the cost. I'm assuming this figure of £12 must have been set as a precedent somewhere?

    I worked for a company once with a policy of only paying on time if there was a discount. Suppliers soon got wise to this and simply adjusted the figures accordingly.
     
    Posted: Jul 11, 2019 By: Darren_Ssc Member since: Mar 1, 2019
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  5. Mr D

    Mr D UKBF Legend Free Member

    16,193 1,804
    A 25% late payment fee in the terms - would that benefit your competitors?
    Never come across any supplier doing it but if I did it would suggest to me to use someone with better terms.

    Can you afford to lose customers even if they have no intention of paying late?
     
    Posted: Jul 11, 2019 By: Mr D Member since: Feb 12, 2017
    #5
  6. Acejlari

    Acejlari UKBF Newcomer Free Member

    18 0
    As Chris has said in the following message, it looks I could put down the rates and it's not in my interest.
     
    Posted: Jul 11, 2019 By: Acejlari Member since: May 24, 2018
    #6
  7. Acejlari

    Acejlari UKBF Newcomer Free Member

    18 0
    Yes, absolutely, that is something that I've already done to not taking any new orders until late payments have been made. I've never tried the company credit, so far. I'm going to have a go with it.
     
    Posted: Jul 11, 2019 By: Acejlari Member since: May 24, 2018
    #7
  8. Mr D

    Mr D UKBF Legend Free Member

    16,193 1,804
    If people are paying late, are you not already providing credit?
     
    Posted: Jul 11, 2019 By: Mr D Member since: Feb 12, 2017
    #8
  9. Acejlari

    Acejlari UKBF Newcomer Free Member

    18 0
    It's almost impossible to state if a customer has no intention of paying late or not. As well, I'm thinking to use those terms in order to get applications accepted easier to Invoicing Finance companies which I've never tried so far, but that's something I'm thinking about it.
     
    Posted: Jul 11, 2019 By: Acejlari Member since: May 24, 2018
    #9
  10. Mr D

    Mr D UKBF Legend Free Member

    16,193 1,804
    If the benefits outweigh the costs, great.

    I'd see at least some cost to it.
     
    Posted: Jul 11, 2019 By: Mr D Member since: Feb 12, 2017
    #10
  11. Michael Loveridge

    Michael Loveridge UKBF Contributor Free Member

    47 28
    The first question is whether or not your customer is a private individual or a business. If it's a private individual they are protected by the Consumer Rights Act 2015, which prohibits unfair terms in consumer contracts. A 25% surcharge for late payment would undoubtedly be considered unfair, and would therefore be unenforceable.

    If you're dealing with business customers they aren't protected by the CRA, but they can still use the Unfair Contract Terms Act 1977 to dispute such a term. Furthermore, if someone breaks a contract the aggrieved party can only recover reasonable losses that they've incurred - they aren't allowed to make a profit from the breach. Any contract term that would result in the aggrieved party recovering substantially more than their actual loss would be construed as a penalty, and the courts will not uphold a penalty as it's unfair on the paying party.

    So overall I very much doubt that such a term would be legally enforceable in any situation. However, as most customers don't know their legal rights and can't be bothered to find out you may get away with it!
     
    Posted: Jul 12, 2019 By: Michael Loveridge Member since: Aug 2, 2013
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  12. TheoNe

    TheoNe UKBF Regular Full Member

    135 14
    To the best of my knowledge, penalties are not enforceable at present. It might not be the best decision in the world. A late penalty charge might cost you customers and damage your reputation.
     
    Posted: Jul 12, 2019 By: TheoNe Member since: Jul 6, 2019
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  13. Acejlari

    Acejlari UKBF Newcomer Free Member

    18 0
    Thanks for your contribution, Michael. To answer to the first question, I'm dealing with businesses, only. Although, the purpose of this payment term proposal is not making profit, but to rule out late payments that will cost me time, money, and slowing down the growth of my company. According to you Michael, those terms will not be applicable, because the law will not enforce it anyway. I could get away if a business isn't aware about the Unfair Contract Terms Act 1977, but it's not a safe bet, and it's breaking or almost breaking the Law.

    Consequently, I am starting to conclude that companies can pay 15 days later the payment term ( which is the average in the UK) and not getting penalized for this delay. As a result, the only way to deal with it is to have an extension period option, unfortunately.
     
    Posted: Jul 15, 2019 By: Acejlari Member since: May 24, 2018
    #13
  14. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    10,544 2,132
    Many companies do one payment run a month and pay at the end of the next month they receive the invoice so payment can be between 31 days and 60 days some extend to 90 days especially the very large firms

    Smaller companies may do all payments at the end of the current month received

    Sometimes it helps to have the date you expect payment to be made on printed on the invoice with a message stating payments after this date will automatically place further orders on hold, sometimes it works many times it makes no difference

    Regardless of the above start chasing after about 2 days over the limit by talking to the buyer
     
    Posted: Jul 15, 2019 By: Chris Ashdown Member since: Dec 7, 2003
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  15. Anthony - Westbury

    Anthony - Westbury UKBF Newcomer Free Member

    22 1
    Hi,

    Yes as long as it is agreed at the outset and not added half way through on an invoice for example.

    Also insert a clause to cover your costs should you decide to pass to a debt collection agency like us so that we can recover back commission and cost direct from the debtor if an individual as B2B agreements are covered under the Late Payment Act.

    Reach out if you need any assistance :)
     
    Posted: Jul 22, 2019 By: Anthony - Westbury Member since: Jul 10, 2019
    #15