Late business payments create cash flow problems. What are your legal options when chasing them? Join us as we run through the steps you can take.

If you find yourself waiting for a payment after the relevant time has passed, there are a couple of steps you can take to try and put pressure on your debtor to pay up. The first is applying statutory interest.

What is statutory interest?

Statutory interest is generous – it's made by adding eight percent to the Bank of England's base rate, which at the time of writing is 5.25%.

If you were chasing a payment of £2,000, you could add this percentage and divide it by 365. The resulting figure could then be charged daily until the invoice is paid.

If you do decide to apply statutory interest, you'll need to issue a new invoice.

What are debt recovery costs?

As well as statutory interest, you also have the option of applying debt recovery costs.

The amount of debt recovery costs you can apply depends on the size of the unpaid invoice – and it can only be charged once per late payment.

If it's up to £1,000, you can add a cost of £40. You can add £70 to an unpaid payment between £1,000 and £10,000 or £100 if the unpaid sum is over £10,000.

What is trade credit insurance?

Statutory insurance and debt recovery costs can be an incentive to pay up. But that doesn't necessarily help with your immediate cash flow problem.

In this situation, trade credit insurance can help. Essentially, this is cover to protect you when waiting on late payments. It tends to apply to medium and large-sized firms, so check your eligibility before you put your hope into this solution.

What is invoice finance?

This is where you use an unpaid invoice as security for a loan. As with trade credit insurance, it doesn't work for everyone. Make sure you do your homework before approaching a lender.

What if interest and debt recovery costs don't work?

If your debtor is still refusing to cough up, you can start legal proceedings.

This can feel like a daunting and dramatic thing to do but is always worth considering as a last resort to ensure you get what's due.

You can do it yourself by submitting a small claim either online or through the County Court.

Online, you need to use HM Courts & Tribunal Service's Money Claim Online (MCOL). After submitting (and paying a fee), you can follow the progress of your claim. This online system also gives the defendant a chance to respond.

In the County Court, you have the choice of representing yourself in person or seeking legal representation. This second option can be best but will cost you more.

Mediation is also an option when pursuing outstanding payments.

Using a debt collection agency

Debt collection agencies sometimes have a bad name – but there are reputable firms who will recover your unpaid monies in exchange for a cut. However, their powers are limited if you don't have a statutory demand or court judgment behind you.

Get a solicitor

Are your emails getting ignored? Are you hearing nothing but excuses? Do you feel like you've run out of options? Then you could benefit from speaking to a solicitor about the issue.

Sometimes, the mere threat of legal action can get a person to cough up. It's simply not worth their while to fight the case – so a formal letter from your solicitor should get things moving.

As well as bringing expertise to the table, a solicitor can be a reassuring presence at a stressful time.

The main consideration is cost. Legal advice isn't free, so it's advisable to weigh the legal fees against the amount you're trying to claim.

How can you minimise the chance of late payments?

There are some administrative habits you can form to reduce the likelihood of missed payments – getting software that sends out automated reminders to late-paying customers, for example.

However, the single most important thing you can do is make sure that your contracts are watertight. Do they include payment dates, termination clauses for non-payment and clauses relating to proof of delivery, for instance? If not, you may find yourself in trouble down the line.

Conclusion

If you've tried everything and are still struggling to get paid, legal action can be beneficial. An experienced commercial lawyer can equip you with the facts you need and fight your corner to get you the outcome you deserve. 

Do you need legal advice with regard to a late business payment? At Milners, we have a close-knit team of commercial law experts who can help you get it paid. Get in touch for a free, no-obligation consultation.