How to handle late payments

Missed payments suck.

If you're experiencing a lot more late payments than usual then it could be helpful to know that you're not alone. As a lawyer, you wouldn't believe how many missed and late payments I see behind the scenes. Or maybe you would?

I've gone from getting asked about how to handle late payments probably every three or four months to being asked for support around how to ensure you get paid on time almost daily. 

It get's worse. 

I've also been told by two different people in the past two months that they successfully used our contracts to recover unpaid debts using debt collection agencies. The debt collection agencies praised the quality of the contracts for being "watertight" and robust so that the sums could be recovered. It's sad that things got that far.

Nobody wants to work and not get paid, but how can you ensure that your business is best placed to get paid?

In this blog we look at the contractual rights and statutory rights to protect you from clients who don't pay.

Step One: Prevention

We all know that cashflow kills businesses, the knock-on impact that late payments can have is devastating, so it's absolutely crucial that you know what your rights are.

The best way that you can ensure that you're going to get paid for the work you do, is to get paid for the work you're going to do, upfront. That can feel really awkward at first but it gives you protection from unpaid invoices. 

That approach works for one off pieces of work but if you're working on a project or retainer and issuing monthly invoices you're also going to want to ensure that you've got wording in your contracts to cover you.

Make sure your contract includes:

1. The due date for payment, be specific - it's important that you're clear about when the payment is due so that you can be clear about when a payment is late. Interest accrues when the payment is late.
2. Details of interest and late payment fees - you can set these and get the other side to agree to them in the contract, keep in mind the statutory limits when you do.
3. Consequences of paying late - such as access to courses being paused and work ceasing.

Step Two: Use the law to your advantage

Ideally, you'll have clauses set out in your terms but if you don't and you're struggling with how to handle a client who is late to pay you, don't panic. There are statutory rights which protect businesses even if you haven't put it in your contract.

Late Payment Fees  - The Late Payment of Commercial Debts (Interest) Act 1998 allows businesses to claim a fixed sum for the cost of recovering a late payment, in addition to interest. The amount is dependent on the value of the debt:

• Debts less than £1,000: £40 
• Debts between £1,000 and £9,999.99: £70 
• Debts of £10,000 or more: £100 

Interest - You can claim statutory interest on late payment of invoices. This is calculated at 8% plus the Bank of England base rate, for business to business contracts.

The only downside is the interest is calculated on a compound basis so it can be a little tricky. If only there was a place online where you could speak to a lawyer every week and get some help on this?!

You guessed it, The Get Legit® Hub, THE legal membership for entrepreneurs, is the place to get help, and it's exactly what I help members with. Our weekly Q&As are the perfect opportunity to ask questions and get quick support with dilemmas just like this - and help you get your overdue invoices paid. 

In addition to weekly Q&As you also get access to fortnightly contract review sessions, monthly "get it done" sessions where you tick off legal tasks on your to-do list. 

When you join the Get Legit Hub you'll get instant access to our AI Legal Toolkit and also our refunds bundle complete with template emails to handle refund requests. 

You can find out more about the membership here.

(PS. If you know a business owner struggling with late payments right now, send them this blog to let them know they have options).