Are you losing Interest in Bad Debtors?

25 April 2008

The arrival of the credit crunch and the tightening of available credit to all businesses means that more than ever cashflow is essential to ensure long term growth and short term survival. Lack of cashflow is the primary reason why companies fail. We are already seeing  highly profitable businesses failing because they are unable to pay their bills in a timely fashion.  A Federation of Small Businesses study found that one in four business failures are as a direct result of interruptions to cash flow. The government introduced the Late Payment of Commercial Debts (Interest) Act 1998 [LPCD(I)A 98] to alleviate cash flow problems caused by slow payers.  Although the legislation has been fully operational since August 2002, now almost six  years on, many businesses are not taking advantage of the Act to claim interest on amounts that are outstanding for more than 30 days.  As a direct result this is affecting the cash flow and growth of their business.

Under other statutory provisions (the County Court Act and the Supreme Court Act) when a claim is commenced the Claimant (who brings the claim), is entitled to interest set at 8% per annum. You have to bring a claim to recover interest. The LPCD(I)A 98 allows businesses to claim interest without the need to commence legal proceedings.  Interest is payable at 8% ABOVE the Bank of England base rate.  The Act gives two computation dates per year being 30 June and 31 December so that whatever the Bank of England base rate is on those dates fixes the interest rate for the next six months for the purposes of calculating the interest.  Currently interest stands at 13.5% (5.5% + 8%) which means that business can claim 13.5% on all invoices outstanding more than 30 days. In addition to the interest, the Act also specifies compensation which is payable on a set scale depending on the level of debt.  On sums up to £1,000, the compensation is £40 from £1,000 to £10,000 it is £70 and on all outstanding bills over £10,000 + the compensation level is £100.

Although the Act is only valid for business to business contracts, it can be used to promote quick paying which assists with a company's cash flow to ensure that your business has the best possible chance of survival in these difficult times.

The Debt Recovery and Insolvency team can provide you with advice on the best ways to recover the sums due to you. We offer a fixed-fee service for non-contested debt recovery matters and we can do all of the interest calculations for you on your outstanding invoices to ensure that you are getting what is rightfully yours. We offer a free 30 minute business consultation with a qualified expert to access your business needs on a no obligation basis. We are also able to advise on all aspects of credit control and corporate and individual insolvency.
 

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