The 30 day default period starts on the day the goods or services are delivered by the supplier. If you have not agreed a specific credit period, then the legislation sets a 30 day default period. If you have agreed a credit period with a customer, the payment is late if it is not made by the last day of the agreed credit period. The legislation does not cover monies owed to a business by consumers. Businesses do not have to be limited companies, with the definition including sole traders, the self-employed, partnerships and charities. Both parties should be a business, commercial entity or public sector organisation. Late payment legislation applies only to commercial, business to business debt. The most significant amendment came in 2013 when a provision was introduced to allow the recovery costs of a third party, such as Advocate to be reclaimed from the debtor. Since 1998 all UK governments have continued to promote a culture of prompt payment and made amendments to the legislation, for example there is now a provision that allows businesses to claim fixed amounts of compensation from the debtor. Scope has since been expanded to include all businesses including public sector organisations. The statutory interest rate of 8% above Bank of England base rate enables businesses to offset the cost of bank borrowings. It was originally designed to be used by small businesses against larger businesses. The Government first introduced legislation to help combat the problem in 1998 when The Late Payment of Commercial Debts Act came into force.įor the first time legislation allowed businesses a statutory right to charge each other interest on the late payment of commercial debt. As more and more businesses were forced to close due to bad debt, increasing numbers of people were being made redundant. The UK was one of the first countries in Europe to recognise that the problems associated with commercial late payment and bad debt were having a negative impact on the whole economy. As a consequence, the cost of chasing invoices is also increasing. Due to higher employment levels and a shortage of candidates to fill vacancies, salaries are rising. Highest levels of inflation are being witnessed in business overheads, fuel and utilities. The SBI found 78% of SMEs surveyed said the cost of doing business is rising. It has been battering SMEs alongside increased debt levels. Inflation doesn’t just affect consumer goods. Despite the impact late and non-payment can have on a business, dealing with the situation remains a difficult challenge for most. There is also a high risk that late payment will become bad debt and affect profitability. Late payment of invoices places a strain on cash flow, tying up working capital and restricting business growth. Overdue invoices are saddling businesses with debt they would have ordinarily have been able to clear down. According to the more conservative estimates, Britain’s 5.6 million SMEs are carrying in excess of £67 billion of late payment debt. The latest FSB Small Business Index (SBI) indicates 440,000 firms could close in the next 12 months due to late payment of invoices. In 2021 the number of private sector businesses fell by 6.5% (389,600). Late and non-payment of commercial invoices is one of the most common causes of business failure.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |