Interest and the Statutory Collection Fee

You have the right to claim interest and a statutory collection fee under the Late Payment of Commercial Debt Regulations, which came into force in August 2002 as an amendment to the Late Payment of Commercial Debts (Interest) Act 1998.

The Regulations enable UK businesses to claim statutory interest in respect of all contracts for the supply of goods or services entered into on or after the 7th of August 2002 where both parties to the contract are acting in the course of a business. The legislation included Hire Contracts, but not Consumer Credit Agreements, Mortgages, and pledges and charges where some other form of security is usually supplied.

Statutory interest is fixed by the Government twice in every hear. At present, the total statutory interest rate is 10 per cent simple interest. You can find a statutory interest calculator on-line at http://www.payontime.co.uk/calculator/statutory.html.

The Regulations also provide a right to claim compensation for your recovery costs - and that applies even if you are doing the recovery yourself. Compensation for recovery costs can be claimed once statutory interest begins to accrue, and is an additional sum:

• Up to £999.99 - £40.00
• More than £1,000, but less than £10,000 - £70.00
• £10,000 or more £100.00

The entitlement to claim interest is an implied term in any contract to which the Act applies: it can only be ousted or varied by express terms that provide a 'substantial remedy' for late payment. Consequently, all other late payment terms purporting to exclude the right to statutory interest in relation to the debt are void. However, creditors do retain the right to claim more interest or compensation under their own Terms & Conditions of Sale.

Negotiation

The basic principle of negotiation is very simple: you can only go down, never up.

The only time you have a chance of negotiating upwards is when your debtors tell you what they can afford - at which point you have a chance of being able to reach a more satisfactory outcome by negotiating up and reaching a compromise figure. When you begin negotiating for settlement at any other time, though, you should bear in mind that you might have to settle for a reduced figure, and begin by asking for the whole of the outstanding amount, plus accrued interest and the statutory collection fee - and be quite clear in your own mind as to the minimum figure you are prepared to accept.

Applying for interest and collection fees from the outset is a very advantageous collection tactic to use because it allows you to negotiate downward from a position of strength. If, for example, the account has been outstanding for a long time, accrued interest might amount to a considerable sum. Your first concession would therefore be to agree to waive a portion of it, which would reduce the outstanding balance without your having to write anything off.

Get a Binding Commitment

Collecting an account often means negotiating for settlement and - these days - being prepared to accept lesser sums in full and final settlement, or lengthy repayment periods.

Many debtors deliberately put their creditors in contact with employees who have limited authority and can't make binding commitments on behalf of the debtor company so as to give themselves a potential 'out' from any arrangement.

If you have 'friends' within the debtor organisation, you're unlikely to fall victim to that particular tactic, but if you don't know your debtor that well, you'll need to find out the names and titles of people who are definitely in a position to make a binding commitment to pay your overdue account before you make even an initial approach.

You can do this by ordering a Company Search. Once you have the names of the Managing Director, Finance Director, and Company Secretary from the Search, a quick telephone call to the debtors main switchboard might get you e-mail addresses and even direct line numbers - and it's never too late to try to make appropriate 'friends', so try to find out who is handling your account at the same time, and plan to make contact with that person, too.

It's a good idea to collect as much current information about your debtor as you can before you begin negotiation for settlement. Ordering a Company Search, checking The Register of Judgments, Orders and Fines, The Individual Insolvency Register, and any one or more of the many available debtor registers will enable you to find out more about your debtor's real situation. And, of course, you shouldn't forget the internet. Websites and social networking profiles can be a mine of useful information about companies and people.