Claiming Debt Recovery Costs on Late Payments

hand reclaiming money

As a result of a 2011 EU Directive, changes to the Late Payment of Commercial Debts (Interest) Act 1998 (the Act) came into force on 16th March 2013.

Providing the debtor is a business you can now recover reasonable debt collection costs.

As a result there is no need to prove that business customers agree to pay debt collection commission or other costs when their account is more than 60 days overdue.

For Public Sector customers you are permitted by law to recover reasonable debt collection costs if their account is more than 30 days overdue.

As a result of the above changes private sector buyers that wish to take advantage of 61 day credit terms or above, or public sector buyers who wish to take advantage of 31 day credit terms or above must agree terms at the outset because if they do not the seller is entitled to claim reasonable debt collection costs.

How much of my debt recovery costs can I claim under the late payment legislation?

Creditors are allowed to recover anything above the fixed sum compensation if this does not meet their reasonable costs of recovering the debt:

Size of the unpaid debt                          Fixed sum to be paid to the creditor.

 

Up to £999.99                                       £40

£1,000 to £9,999.99                             £70

£10,000 or  more                                  £100

 

There is no guidance on what is considered reasonable where the costs of recovering the debt are above the fixed sum of compensation, but it goes without saying that costs must be proportionate to the debt.

The Late Payment of Commercial Debts (Interest) Act 1998 provides that where the agreement is silent and there are no late payment interest conditions the creditor is entitled to claim Late Payment statutory interest.

The interest applied is 8% above the Bank of England base rate.

 Alternatively if you can show that the Late Payment interest negotiated with the debtor is not substantial, you can take advantage of statutory Late Payment interest.

The Act currently provides for statutory interest to run from the date agreed for payment of the debt.

If no date is agreed the Act imposes default date of 30 days from performance of the contract or notice of the debt.

Master Collections welcomes the changes because the fixed sum of compensation is out of touch with actual debt collection costs. As a result in the absence of an agreement with the debtor Master Collections can now enforce their commission so that our customers in connection with business to business and public sector matters get a service that pays itself.

But invariably there will be some debtors who will not pay our commission and it will then be a judgment call our customer has to make whether or not to issue legal proceedings and bear the cost of the same.  Nevertheless Master Collections boasts some of the lowest commission rates on the market, our commission starts from 8% compared to the industry average of 15%.

Further Information

To find out how Master Collections can help you call award winning professional Carlo Pegna on 01920 481467  for a FREE debt recovery assessment.

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