Late pay gripes

This week, instead of being a journalist and trainer, I spent at least a day dealing with late paying clients. It was mainly AOL, which, until today, had not paid a single freelance contributor, despite us working since December.

My company has now been paid more than £10,000 by some clients and we have remittance advices in from others so will be paid by Tuesday. But as of today we have more than £21,000 of invoices outstanding, of which nearly £2,400 is already overdue. That is me lending companies money.

One payment received today was overdue. I shall be claiming my £70 fee plus late payment interest under the terms of the Late Payments of Commercial Debts (interest) Act 1998 as amended and supplemented by the Late Payment of Commercial Debts Regulations 2002.

Ignorance is bliss

It never ceases to amaze me that companies – accounts staff, lawyers, even finance directors – are unaware of their legal responsibility under the late payment laws.

First there are the contracts. Unless agreed otherwise the law allows for a 30-day credit period. But that does not mean, as some companies think – AOL and Time Out are two I have had personal experience of – that the purchaser can insert 45 days or 60 days into the contract.

For there to be a period longer than 30-days the penalties for late payment have to be significantly tougher than those under for standard 30-day terms. Companies always add extra days but never offer greater fees and higher rates of interest. So those clauses in the contracts are worthless.


On standard terms the interest chargeable is 8 percentage points above Bank of England Base rate. To simplify things the rate only changes twice a year for the purpose of calculating interest. At present the base rate is 0.5% so the interest chargeable is 8.5%.

There are three fees, depending on the amount on the invoice.

  • Invoice below £1,000 – £40
  • Invoices below £10,000 – £70
  • Invoices above £10,000 – £100

This makes paying small invoices late the most expensive accounting error a company can make. For a £100 invoice paid one day late the total charge is the £40 fee plus 2p a day, or £40.02p. That adds a staggering 40% to the cost of the original work.

Can’t pay, won’t pay?

The legislation also means that if I have to invoice for £860, once I add VAT it becomes £1000.50. Paid one day late it attracts a fee of £70, plus interest of 23p. Paying one day late adds 8% to the original cost.

Most companies cannot afford those sorts of mistakes. But try as I do to educate them, they insist on paying late.

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