Contractors’ Questions: Is my client wrong to say they must agree to any late payment fee?

Contractor’s Question: I reached an agreement with an organisation to do some consultancy-advisory work for them over the phone. The individual I spoke to originally proposed paying me as an individual, not via my limited company, but they eventually agreed the work could be done on a business-to-business basis.

The work was completed, I sent my invoice but by this point someone else had taken over the project. I emailed this person to warn him that my invoice’s ‘due date’ was approaching, but he said that they planned to pay me as an individual, not through my company.

I have the original agreement from the first person I dealt with in writing and said I would send this over. I also said that if the due date on my invoice passes without payment, I will reissue it and add late payment fees, as I am entitled to do having been engaged as a business. The response was that this would be unfair. He said they never agreed to any late fees and would have had to, in advance, for me to be able to levy the fee.

Am I right in thinking the other party does not have to agree to late fees, and that I am just exercising my right under law? I have no plan to tag on the ‘reasonable recovery costs’ fee at this stage, as I think that’s a bit much for now. But could I use that as leverage, if I’m still unpaid in a fortnight?

Expert’s Answer: As you have the agreement that the work would be carried out on a business-to-business basis in writing, it sounds as if you have evidence of a contract being formed between two corporate entities. If that is the case, then the legal standing would be that your company is due payment, and not you as an individual.

It is no doubt a sensible step to send this agreement over to the new contact at the organisation you are now dealing with to show that this agreement exists and that you are entitled to enforce the due date on the invoice. Getting in front of an issue like this and demonstrating you have the paperwork to back up your claims now, will often reduce or remove excuses that can be used by the client to delay payment later.

As this appears to be a B2B debt, then late payment legislation is almost certain to apply and we heartily commend you for making use of the threat of these charges to reinforce your due date. We recommend every creditor should exercise their rights under law when it comes to late payments or, as you have done, warn of their inclusion if there is a delay in settlement.

You are also quite right that late payment fees are not something that have to be agreed in advance by the debtor. It is statute law and as such applies to any B2B invoice issued between two UK-based businesses. The act itself has been around in one form or another since 1998 and there is nothing within it to say that debtors have to be warned in advance. Similarly, while the charging of these fees is not mandatory, there is no ability for a client or customer to ‘opt-out’ of the legislation. If the invoice is paid late and you choose to apply these fees, you are indeed simply exercising your rights under the law.

As for when exactly the invoice would become overdue, again the law itself is clear in this respect. If you did not agree a payment date with this customer in advance, then you would default to a 30-day credit period that begins after either:

• the customer gets the invoice; or
• you deliver the goods or provide the service

Finally, a word from us on the “reasonable costs” element of the legislation. As a collections company, we regard this provision as mainly being intended to cover the additional costs you as a creditor might incur when turning to third-party assistance to recover the debt, such as hiring a debt collection agency, or engaging with a mediator or legal services firm, rather than for your own internal costs. So at this stage, no, you would still hope you wouldn’t have to go down that route, although you do have the leverage of telling the client that if they do not pay soon, you will have no choice but to turn to a specialist debt recovery company who will then add their fee to what is already owed.

All in all, we would say you are going about things exactly the right way. Stick to your guns, use the proof available to you about what was agreed, insist on prompt payment and exercise your rights in terms of adding late fees -- and reasonable recovery costs if payment is not forthcoming.

The expert was Adam Home, managing director of Safe Collections.