ARE YOU WORRIED ABOUT LATE PAYMENTS FROM YOUR CLIENTS? Breach of contract

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Are you worried about late payments from your clients?

Cashflow issues are going to be a reality in the immediate future for many companies in the industry, not least due to some Operators seeking to impose 90-day payment terms in their contracts. Always check what the contract says in relation to your payment terms – if it says 30 days, for example, then any delay beyond that term will constitute a breach of contract.

Some considerations if you are experiencing late payments from your client:

  • Check the contract terms – know your rights.
  • Follow the administration instructions in the contract when submitting invoices – don’t give clients an excuse to delay payment.
  • Discuss your client’s late payments with them – ask for a payment plan to be put in place to enable you to monitor the situation and test your client’s sincerity.
  • Does the contract allow you to charge interest on late payments (as a form of damages for breach of contract)? If not, you will have rights under the Late Payment of Commercial Debts (Interest) Act 1988. You could consider threatening to apply these if payment is not expedited; but this could sour a continuing relationship with that client so act cautiously.
  • Don’t assume you have the right to stop work under an ongoing contract (as it is likely that you will have waived this right in the contract) – check the terms first to make sure you don’t put yourself in breach of contract because your breach may end up legitimizing the client’s non-payment.
  • Court action may be considered but only as a last resort, and you will need to consider instructing lawyers before doing so.
  • Insolvency Act 1986 rules being breached may be an issue if directors are allowing the company to continue trading whilst insolvent, but note (at time of writing) these rules have been relaxed for 4 months from 1 March 2020 in light of the COVID-19 crisis.
  • With all of the above considerations, always have at least one eye on your ongoing commercial relationships and reputation. Don’t jump in with both feet if your client is a couple of days late for the first time. Step number 3 is crucial – discuss the issue openly.

Going forward, before entering into new contracts with clients you will need to consider doing financial due diligence on them, especially if the contract value is substantial to your firm.

This note relates to late payment in the UK (and under English and Scots law). If your contract is governed by foreign law, you will need to consider consulting local law specialists in the relevant jurisdiction.

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