Using the law
In theory, the law is on your side. In reality, the law sees you and the giant corporation you are freelancing for as two equal bodies. It does not recognise that the bigger organisation has more power and influence, can hire expensive lawyers and can bully you just with the threat of making sure you never work again.
Having said that, there are times when using the late payment laws can be very helpful.
The full name for the late payment legislation, which you should make clear on the invoices you will use, is: the Late Payment of Commercial Debts (Interest) Act 1998 as amended and supplemented by the Late Payment of Commercial Debts Regulations 2002.
This means you can charge a fee for any invoice not paid on time, plus interest at eight percentage points above the Bank of England’s base rate. Interest rates are currently very low so the interest does not add up to much but the penalty charges are worth it.
For bills of less than £1000 you can charge £40. Between £1,000 and £9,999.99, you can charge £70 and for invoices of £10,000 or more you can charge £100. So even if you only invoice for £10, if it is paid late you entitled by law to a £40 compensation fee.
Do the Maths
Calculating the interest on top of the fee gets more complicated. First you need to know the current interest rate. This has been simplified and for the purposes of this legislation, only changes twice a year. The Bank of England rate on 31 December is used for the first six months of the year and the rate on 30 June is used for the next six months. The BofE rate has been 0.5% since 2009, making the amount you can charge 8.5%.
You take the amount of the debt (including VAT if you charge that) and multiply it by the interest rate (8.5% is 0.085) This gives you the amount in interest for a whole year. You divide that by 365, which gives you the daily rate. And then you multiply that by the number of days the invoice was paid late.
So, a £100 invoice paid ten days late is £100 X 0.085 = £8.50 ÷ 365 = 2.3p per day X 10 days = 23p. But add that to the £40 fee and the total you can claim is £40.23. There are many interest calculators online that you can use (see links below).
All you need to do to claim is write or email setting out that you wish to claim, giving the invoice and payment details.
Here’s a draft you can copy and adapt:
I am claiming late payment fees and interest on the invoice detailed below under the Late Payment of Commercial Debts (Interest) Act 1998 as amended and supplemented by the Late Payment of Commercial Debts Regulations 2002.
- Invoice number: XXX
- Dated: XX/XX/XX
- Amount: £XX
- Invoice due date: XXX
- Invoice paid date: XXX
- Days late: XX
- Interest rate: XX
- Interest charged: XX
- Fee: XX
- Total amount due: £XX.
Please make payment immediately.
If you have several invoices you might be best to produce a table of them – but you can include as many as you like in a single demand.
The key here is that you can use this as a lever to get customers to pay on time. The law allows you to wait six years before claiming your late payment charges and interest but if you keep pointing out that paying you late is incurring these charges, it can put pressure on firms to speed up payment. And you can, at the end of six years, claims for the whole lot in one go.
This might be particularly relevant if you work for one organisation for several years that paid a few invoices late. Once you have ceased working for them, demand your late payment entitlement.