Freelancers’ Questions: How much is the late payment fee, if I didn’t set a ‘pay-by’ date?

Freelancer’s Question: I invoiced in early December, but I forgot to include a ‘pay-by’ date. My payment terms are usually 14 days. I’ve still not received payment, but phoned the agency twice only to be politely fobbed off with excuses. I’ve emailed too. More fob-offs.

I’ve since sent a second invoice for a separate piece of work I did via this same agency, and this time I have specified they pay me within seven days. After all, they’re already weeks overdue for the initial invoice! And they’re a few days overdue now with the second one too.

With the invoice I forgot to include a pay-by date on, does that mean that the agency can dictate payment terms? Worryingly, I’ve heard they have 45-day terms. Is that lawful? What should my next steps be to get both invoices paid, or is it time to get a solicitor involved? Taking the agency to a Small Claims Court would be my preference, as invoice one is for under £1,000, just. But how much can I charge in late fees, and how do I calculate them?

Expert’s Answer: Late payment charges have been around in one form or another since 1998 but the legislation itself has been updated numerous times, so it isn’t always immediately obvious what the current legal position is.

Starting with late payment fees, for an overdue invoice under £1000, you can charge a single £40 in statutory late payment costs, plus statutory interest calculated at 8% above the Bank of England base rate on the principal invoice amount. You can read more about how to calculate interest on late payments on the .gov site here.

Default 30 days applies if your invoice is silent

As far as the payment terms go, again this point is covered in the legislation and this states that if you didn’t agree payment terms with the errant customer in advance; or if previous payment practices do not exist, then the parties would default to 30-day payment terms.

In this case, if this is the first invoice with this particular client, and if your 14-day payment terms were not agreed before you started to work for them, then the statutory default credit period of 30 days applies and the payment would be deemed ‘late’ on day 31 and charges can be levied at that time.

By the same token, your client is highly unlikely to be legally bound by the seven-day payment terms included on the second invoice and you are extremely unlikely to be bound by their 45 day payment terms, as again for either party to be bound by payment terms then these would have needed to be stated in advance.

How you can be prudent

It would be prudent to check any formal Purchase Order or Works Request received from the client, to ascertain if these did include any reference to payment terms. But if no specific agreement exists in this regard, then the law is clear.

Generally-speaking, it isn’t unlawful for businesses to specify longer terms - legislation allows for up to 60 days on a business-to-business (B2B) sale. But the key point is that any term is not judged to be “grossly unfair” to the creditor.

As stated above, our view is that the 45-day terms you have read about would only apply if the client made you aware of them -- and you agreed (either explicitly in writing or through continuing to provide the services), at the outset. If not, it would revert to 30 days as outlined in the legislation.

Getting (futher) help

On that basis, your first invoice would now indeed be late by a matter of weeks and your second invoice will be overdue shortly. So we would recommend that if the second invoice is also left unpaid that you seek help from a reputable debt collection agency. Choose one which is experienced in B2B matters first, and then look at the small claims route if they are unsuccessful.

Most established agencies will only charge a fee if they recover the funds and it’s also worth remembering that they can also seek to recover their fees under the “reasonable costs” element of the legislation. So going down that route carries little financial risk to you, provided you use an agency that has a clear and unambiguous ‘no collection = no commission’ promise, and no up-front fees or abortive charges.

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