Late payments can seriously affect your small business and are a key risk your business should take steps to mitigate against. The law provides certain helpful protections for businesses to help protect their cash flow and reduce financial risk. For example, legal rules require certain large businesses to report on their payment practices and legal rights, allowing a business to charge interest if a customer pays late. This article introduces laws on reporting payment practices and statutory interest and explores key practical and legal steps your small business can take to help reduce non-payment risks.<\/p>\n\n\n\n
If your business supplies goods or services to very large companies, you may worry about whether they will pay you on time.<\/p>\n\n\n\n
The law requires certain companies formed under the Companies Act 2006<\/em> (or earlier UK legislation) and LLPs registered under the Limited Liability Partnerships Act 2000 <\/em>to report on how they pay suppliers. A business must report if, on its last two balance sheet dates, it exceeded at least two of the following thresholds: \u00a336 million in annual turnover, \u00a318 million in balance sheet total (the total value of its assets), or 250 employees. <\/p>\n\n\n\n From 6 April 2025, the thresholds for reporting payment practices will increase. The legal rules arise from the Reporting on Payment Practices and Performance Regulations 2017<\/em> for companies and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017<\/em> for LLPs<\/a>.<\/p>\n<\/div>\n\n\n\n Large businesses subject to these rules must publish reports using the government’s online portal at least twice per financial year, in relation to \u2018qualifying contracts\u2019. Simply put, reports on qualifying contracts must include narrative descriptions of standard payment terms, the time to pay invoices, processes for resolving payment disputes, and information on percentages of late payments made. <\/p>\n\n\n\n These rules aim to increase transparency and can help smaller suppliers assess payment risks. Late payment can be a serious issue, disrupting cash flow and rising costs. By requiring large businesses to publish data on their payment behaviour, this law can help your business identify potential red flags before you agree to supply.<\/p>\n\n\n\n\n\n\n Your business can use this helpful information<\/a> to search for information from potential customers and assess any risks. Companies can review the reporting guidelines to understand the full scope of the reporting rules and what they cover. <\/p>\n\n\n\n If a customer pays late and your contract does not include an interest clause, the law may still give you the right to charge interest. The Late Payment of Commercial Debts (Interest) Act 1998<\/em> gives a business the right to charge statutory interest when it supplies goods or services to another company.<\/p>\n\n\n\n This right applies if your contract does not include another clause that offers a substantial remedy for late payment. If the act applies, your business can charge 8% interest above the Bank of England base rate. You can also charge a fixed sum for the cost of recovering the late payment. The act does not apply to consumer contracts or certain excluded agreements.<\/p>\n\n\n\n Although statutory interest can help your business recover costs and encourage faster payment, you should check whether the rules apply to your contract and seek legal advice if unsure whether you can claim it.<\/a><\/p>\n\n\n\n While statutory interest may help in some situations, it does not apply to every contract. If the act does not apply, your business cannot rely on it to charge interest. Your company should consider including an interest clause in its contracts<\/a> to give you more certainty. <\/p>\n\n\n\n An explicit interest clause can also deter late payment. When customers know they will owe interest, they are more likely to pay on time. If a customer misses a payment, your business can point to the interest clause in the contract and confirm that interest is already accruing. This often helps prompt quicker payment.<\/p>\n<\/div>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nWhen Can Your Business Claim Statutory Interest on Late Payments?<\/h2>\n\n\n\n