Late payers: your time is up

LIFE IS about to get tougher for clients who pay late. The European Union directive on late payment comes into effect to cover work commissioned on or after 7 August 2002. It will be easier to calculate the interest which late payers must stump up - and you can for the first time claim flat-rate compensation for the cost of chasing the debt.

The payment clock starts ticking (by default) when you deliver the work, or on the day when your client has notice of the amount they owe you, whichever is the later. Your client has 30 days to pay. After that, you can claim interest at 8 per cent over the "Bank of England dealing rate", plus compensation: £40 on debts under £1000 - and £70 on debts under £10,000.

Commissioners may propose their own contracts with different remedies for late payment and different payment periods. The new law says that these alternative terms must not be "grossly unfair" - and, if they are, the default terms apply.

Some publishers may want to use this get-out - for example asking you to agree that the clock only starts ticking on publication. Please send copies of interesting contracts to the Freelance Office.

Be clear when you invoice for work. The cliché "Terms: net 30 days" is useful. The UK government's advice suggests an additional standard form of words on invoices:

We understand and will exercise our statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to agreed credit terms.

Next, if they haven't paid, send them an invoice for the compensation and the interest due and a "statement" summarising all their unpaid invoices - the original one for the work, the one for the penalties, and any others.

To calculate the interest:

  • first look up the Bank of England "dealing rate" that applied at the beginning of the half-year - on the 31 December or 30 June before the due date;
  • add 8 to the percentage;
  • divide by 100 to convert the percentage to a fraction;
  • divide by 365 to get a daily rate;
  • multiply that by the number of days they're late; and
  • multiply the result by the amount they owe.

If the period when they weren't paying spans two half-years and the rate changed, you'll have to do the sums separately for the two rates. But this system of six-month chunks is simpler than the rules for work commissioned between 1 November 1998 and 6 August 2002, which made you calculate interest in "real time".

You can get the dealing rate from newspapers - or from www.bankofengland.co.uk. You can download the UK government's voluminous advice pamphlet from www.payontime.co.uk or order it on paper from 08 701 502 500.

In other EU countries the penalty interest rate is the European Central Bank rate plus a minimum of 7 per cent. The Irish government is sticking to this minimum. There is guidance here and the regulations themselves are here (MS-Word file).

And if they still don't pay:

London Freelance Branch has launched an online service to help the Freelance Office help you claim from clients who still don't pay after you've invoiced and statemented them. The Collect-o-Matic form is designed to proofread the details before you send them, to save to-ing and fro-ing.

11 September 2002

Further notes:

The full title of the European Union legislation is Directive 2000/35/EC of the European Parliament and of the Council of 29th June 2000 on combating late payment in commercial transactions.

France went for the ECB interest rate plus 7% and Germany went for 8% - but I have not managed to discover where either sets out penalty charges.

Sweden, Denmark, Finland, Belgium, Austria and Italy have also implemented the Directive - translations are welcome!

That leaves Portugal, Spain, Greece, Luxembourg and, untypically, the Netherlands in breach of EU law, at least for not reporting to the EU Commission that they have done what they must.

Last modified (notes): 28 January 2003 - © 2002 contributors
The Freelance editor is elected by London Freelance Branch and responsibility for content lies solely with the editor of the time
Send comments to the editor: editor@londonfreelance.org