Are you losing interest in bad debtors?

20 May 2008

With the arrival of the credit crunch and the tightening of available credit to businesses, now, more than ever, cashflow is essential to ensure long-term growth and short-term survival.

Claim interest without legal proceedings

According to a Federation of Small Businesses study one in four businesses fail due to interruptions in cash flow.  So why aren’t more companies taking advantage of the Late Payment of Commercial Debts (Interest) Act – introduced in 1998 and fully operational since August 2002?

Unlike other statutory provisions (the County Court Act and the Supreme Court Act), the LPCD Act allows you to claim interest on amounts that are outstanding for more than 30 days without resorting to legal proceedings. Interest is payable at 8% per annum above the Bank of England base rate.

The act gives two computation dates per year – June 30 and December 31 – so whatever the Bank of England base rate is on those dates fixes the interest rate for the next six months.

Current interest

Until 30th June 2008, interest stands at 13.5% (5.5% plus 8%) which means that businesses can claim 13.5% on all invoices that are more than 30 days outstanding. And as well as the interest, the act specifies compensation which is payable on a set scale depending on the level of debt.

On sums up to £999.99 compensation is £40; from £1,000 - £10,000 it’s £70 and on all outstanding bills over £10,000 it’s £100.

Although the Act is only valid for business to business contracts, it can be used to promote quick paying and gives your company the best possible chance of survival. Isn’t it time you sought advice?

For further information contact Martin Kingman on 01643 828277.

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