Should Government Legislation Help A Small Business Recover a Debt From a Large Business Which Is Late With A Payment?

The government legislation covering the Late Payment of commercial debts was introduced in November 1998 and amended on August 7th 2002, which incorporated EU Directive 2000/35/EC on combating late payment in commercial transactions.
The point of this legislation is to allow a creditor to impose a cost on the debtor as well as the debt incurred, as penalty for late payment. The cost depends on the size of the debt as shown in the table below.

Size of unpaid debt Sum to be paid to the creditor
Up to £999.99 £40.00
£1,000.00 to £9,999.99 £70.00
£10,000.00 or more £100.00

In addition to this, the creditor can similarly claim reasonable costs as accrued in the Debt collection process and also interest on the debt. So, armed with this information, the creditor can possibly make a good proposal for the debtor to pay up as soon as possible after the date for payment has elapsed. This date Where there is no date the law uses a credit period of 30 days, which may be used as an interest free loan period by the debtor.

The creditor needs to decide on the best way to manage this late payment issue, as the longer it continues the more dear it can be, due to reduced income and possible ascendin g costs waiting to be charged against the debtor. The creditor must always take the first step of contacting the debtor and courteously remind them that the invoice is unpaid and the final payment date has gone by. If this fails to instigate payment then they will need to consider what further steps to increase the pressure on the debtor. It would be rather unwise for the creditor to finish up with a steep bill for Debt collection because if the debtor ends up being forced into administration, the creditors may not be awarded their claims in full, so it is best to be prudent when working on the next steps.

The next steps include talking to a solicitor, talking to a Debt collection agency or opting for a DIY approach by the use of Debt collection software that includes templates for the creation of Debt collection letters. The solicitor should be a person who specialises in Debt collection and can produce good quality Debt collection letters on your behalf, but there will be a companies and it would be wise for the creditor to try and find one that has a proven record of courteous dealings with the debtors they have been successful with, as the creditor may wish to keep on good terms with the client in the hope of obtaining future contracts. The Debt collection agencies may set a cost based on the amount of the debt, or a set figure if the debt is below a threshold value, so this can be expensive. For the DIY approach, the creditor should be able to work within the Debt collection software to edit the wording of the Debt collection letters to ensure that they are fulfilling this need. The templates for Debt collection letters should exist for all of the likely stages in the Debt collection process, and should contain references to the costs allowed by Late Payment of Commercial Debts legislation. The DIY approach should be the cheapest and the creditor must examine the various packages of Debt collection software to ensure that they meet the criteria set out above.

Quoting the legislation to a large debtor would be unlikely to antagonise them because being a large company they may have their own legal department, or a contract with a legal practice and so should be aware of this legislation in order to collect their own debts efficiently.