Late Payments Problems - Steps to Take and Remedies to Resolve

Contractors often suffer from the late payment of invoices. To ensure that this issue does not become a significant problem, contractors should be aware of a number of steps to take prior to starting a contract and also the remedies available should a late payment problem arise.

The first port of call is to consult the contract in place with the client who is delaying payments. A good contract should have strict payments terms, and contractors should always ensure that they check the contract and ensure that these terms are suitable prior to commencing work. Contractors are not always comfortable with questioning clauses in contracts, fearing that it may affect whether they are awarded the placement. One way around this is to use the services of an umbrella company or limited company services provider with expertise in the contracting marketplace. Contract negotiations are one of the expert services offered by reputable service providers and should ensure that acceptable payment terms are in place from the outset.

In addition to contract negotiation, Contractor Payment Companies will also look after invoicing and credit control, chasing any late payments on behalf of contractors, thus alleviating the necessity for a contractor to have to ask a client for payment, again a situation that many contractors do not relish.

Late payments, should never be left un checked as it could be a sign that the client is in financial difficulty and with contractors classed as businesses, in the event of the company failing, contractors often fall way down in the chain for claims from the company’s assets, meaning little or no return for the hard work the contractor has put in.

Where normal credit control procedures have not been fruitful, there are legal remedies in place for dealing with solvent companies who are habitually late in paying invoices.

As with all contractual relationships, should a client not fulfill an obligation stated in the agreed contract (in this case - adhering to payment terms), they will be in breach of contract, enabling the contractor to justifiably terminate the contract, and opening the door for a potential claim against the client under the Late Payment of Commercial Debts (Interest) Act 1999.

Under the act, where there is no specific provision for interest on late payments within the contract, a contractor may be entitled to fixed payments, to cover reasonable recovery costs and interest on the outstanding debt. The fixed payments are; debts up to £999.99 - £40, debts of £1000 to £9999.99 - £70 and £100 for debts over £10,000.

Interest is charged at 8% plus the reference rate (which is set at the Bank of England base rate) currently 0.5%, making a total late payment interest rate of 8.5% until 30th June 2010, at which point the rate is reset for the following six months. Interest accrues daily at 1/365th of the annual interest per day.

Contractors are advised to ensure that they are aware of the payment terms within the contract and that they are acceptable to them. Also they should ensure that any late payments do not get out of control using standard credit control procedures in the first instance and consider a statutory claim should the payment remain outstanding for an unacceptable period of time.

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