The Growing Dangers of Late Payment for Businesses that Pay Late

In the current business climate most same day courier companies are more concerned with how quick they can collect the money due from their customers than they are with whether they pay their suppliers late. Quite often all the money coming in goes straight out to the ‘important’ creditors – fuel card company, van hire, landlord, drivers’ wages etc, leaving the ‘less important’ suppliers to wait for their overdue payments.

I’ve warned many times of the dangers of running businesses like this and it seems from anecdotal evidence that some companies are finally having to count the cost of paying their suppliers late.

With the soaring cost of fuel and the general slowdown in the economy it seems that some transport company owners have decided that it will be more profitable to cease their transport operations and concentrate on collecting the outstanding debts accumulated under the late payment legislation.

The Late Payment of Commercial Debts (Interest) Act 1998 (see http://www.payontime.co.uk for further information) gives businesses a statutory right to claim daily interest from other businesses for the late payment of commercial debt. In addition businesses have the right to a compensation payment of between £40 and £100 for each invoice which is paid later than agreed terms. If no terms are agreed then the terms default to the later of 30 days from the day the service is performed (for pre-agreed amounts) or 30 days from the date the cost is confirmed.

Both the interest and the compensation payments are chargeable on each invoice paid late, are payable on demand and are claimable up to six years after the date they become payable – i.e. up to six years after the payment becomes late. They are payable even after the initial debt has been paid in full.

Companies are potentially storing up a time bomb by paying their customers late. As an example, a courier company which carries out 5 local jobs per week for a customer over a 6 year period, each one of which is invoiced on a separate invoice and each one of which is paid late, could potentially issue a claim after 6 years for £62,400 against that one customer in late payment compensation charges alone.

If a company issues just 25 invoices each week which are paid late Read More…

Posted under Courier Business, Courier Financial Issues, Late Payment, Legal Issues

Posted by Alec at 2:34 pm, August 16, 2008

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What Details Need to Appear on a VAT Invoice for Courier Services in the UK?

There are strict, but thankfully very simple, rules for what needs to appear on a VAT invoice in the UK.

To satisfy HMRC you need to include on your invoice:

The date of issue of the invoice.
A sequential number that uniquely identifies the invoice.

Your business’s name, address and VAT registration number.
The name and address of your customer.
Your customer’s VAT registration number (only if they’re VAT registered in another EU country and you’re invoicing without VAT).
The date of supply of services (the date you did the work).
A description of the services supplied (from a VAT point of view ‘Courier work’ would be OK – your customer may want more detail).
The VAT rate applied (normally 17.5%).
Total amount of VAT payable.
The total amount payable for the whole invoice excluding VAT.
The total amount of VAT charged at each VAT rate (normally just one entry for the 17.5% rate).
The unit price of the services supplied and the number of units charged for – if this is normal practice for your industry (as far as I’m aware it isn’t normal practice in the courier industry) or required by your customer. In practice you can ignore this unless you charge your customer by an agreed price per mile or hour worked AND they’ve asked you to include the figure on your invoice. For example ‘200 miles @ 70p/plm’.

To satisfy Companies House and Trading Standards:

If your business trades under a name other that its actual Read More…

Posted under Accounting Systems, Courier Basics, Courier Business, Courier Financial Issues, Late Payment, VAT

Posted by Alec at 7:32 pm, August 5, 2008

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Statutory Interest and Late Payment Charges

www.payontime.co.uk

www.payontime.co.uk/doctor/doctor_main.html

The Late Payment of Commercial Debts (Interest) Act 1998 gives you the right to claim interest and compensation for late payments.

This is a statutory right – your customer doesn’t have to agree to it, you don’t have to inform them in advance that you intend to charge them if they pay late and you are not permitted to agree in advance to waive late payment fees unless a suitable alternative form of late payment penalty is agreed.

For invoices up to £999.99 you can charge £40 PER LATE INVOICE. For invoices of between £1,000.00 and £9,999.99 you can charge £70 PER INVOICE. You can also charge interest on a daily basis, currently at a rate of 13% per annum.

You don’t charge VAT on the late payment or the interest and you don’t charge the late payment fee on a recurring basis.

You don’t HAVE to charge the late payment fee but unless you’ve specifically agreed to waive the fee the late payer still owes it to you EVEN AFTER THEY’VE PAID THE ORIGINAL DEBT. The Read More…

Posted under Courier Basics, Courier Business, Courier Financial Issues, Late Payment, Legal Issues

Posted by Alec at 5:19 pm, August 2, 2008

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Mileage Allowance Scheme for Self Employed Couriers

A typical self-employed same day courier will put a lot of effort into keeping their vehicle running costs as low as possible; the difference between their running costs and their turnover is their profit after all. It’s quite common to leave financial matters, particularly tax-related matters, to an accountant or bookkeeper and I’m always astonished how many ‘accountants’ fail to advise their same day courier clients to consider using the Mileage Allowance Scheme rather than claiming their actual vehicle running costs against tax.

Many accountants seem completely unaware that this option is available to their clients, despite it being prominently featured in the HMRC Help Sheet HS222: How to calculate your taxable profits.

Self-employed people with a turnover under the VAT registration threshold Read More…

Posted under Courier Basics, Courier Financial Issues, Mileage Allowance Scheme

Posted by Alec at 8:42 am, July 30, 2008

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Late Payment and Poor Credit Control in the Courier Industry

For some reason there’s a lot of criticism, mainly coming from ‘old hand’ courier companies, about owner-drivers and small same day courier companies ‘moaning’ about being paid late by other courier companies.

While the people ‘moaning’ and threatening to ‘name and shame’ are widely lambasted as being unprofessional, unbusinesslike and not taking normal business practice into account, I can’t help thinking that maybe it’s the ‘old hands’ that have got it wrong.

Should it really be acceptable that new entrants to the business are forced to fall into line with the pre-existing sloppy practices of the courier industry? ‘Real’ businesses don’t allow elastic lines of credit to unchecked, untested and undeserving customers; why is the same day courier industry so different?

Why are the new entrants, at the bottom of the ladder, forced to accept late payments that are mainly caused by the slack credit control practices of the courier companies they subcontract to?

It’s not so much the late payment that’s a problem with some companies it’s the fact that when they take advantage of extending their suppliers’ credit terms they’re sitting on an enormous pile of debt. Lending your hard earned cash to anyone in this industry is a very risky step to take, more so now than ever before.

Even with its shaky finances in the recent past Nissan is a Read More…

Posted under Courier Business, Courier Financial Issues, Late Payment

Posted by Alec at 6:42 pm, July 16, 2008

Courier Terms and Conditions

So you’ve got your Goods In Transit Insurance (up to say £15,000), you’ve got your Public Liability Insurance (up to say £1 MILLION) and you think you’re pretty much covered for everything, right? Wrong.

Unless you only ever carry goods under your own ‘Terms and Conditions’ or ‘Conditions of Carriage’, which you make available to your customers before you carry out any work for them then you could be wide open to a claim for unlimited damages from your customer or even from your customer’s customer.

Your Goods In Transit insurance might well cover you for £15,000, but what if the goods you’ve collected are worth far more than that? A consignment of computer chips or a pharmaceutical sample can be worth many times that and if it was lost, stolen or damaged while under your control you would be liable for the full value unless your Conditions limit your liability.

That’s not the worst of it though. Most couriers’ Conditions quite rightly disclaim any liability for consequential loss. Without this essential restriction to your liability your losses are potentially unlimited should a late, lost or damaged consignment cause your customer any financial loss due to your ‘negligent act’. A ‘negligent act’ could be as simple as you leaving goods in your vehicle overnight and them being stolen, being late for a delivery because your cambelt broke due to being overdue for replacement, subcontracting your delivery to a muppet or just sending a document by overnight delivery and it being misrouted.

In the absence of suitable Conditions the only defence that you may have against a claim is to be able to prove that your customer’s loss occurred Read More…

Posted under Courier Basics, Courier Business, Courier Financial Issues, Insurance for Couriers, Legal Issues

Posted by Alec at 8:25 pm, July 9, 2008

Claim back the VAT on things bought before VAT registration

When you first register for VAT you’re allowed to claim back the VAT on some of the things you paid VAT on before you became VAT registered. The claim should always be made on your first VAT return. HMRC are ‘allowed’ to let you claim at a later stage but they don’t have to do so.

You must be able to provide receipts showing the VAT for anything that you claim the VAT back on in this way. Be warned that HMRC are very likely to ask to see all the supporting VAT receipts if you put in a big reclaim of VAT on your first VAT return. This is nothing to get worried about as long as you’ve stuck to the rules.

You can claim the VAT back on any ‘goods’ that you’ve purchased up to 3 years before your registration date as long as you still have the goods on the date that your registration starts. ‘Goods’ would include vans, computers, promotional material, uniform, fax, telephones and even the tank full of fuel you bought the night before your registration started.

You can also claim back the VAT on any ‘services’ that you’ve paid for up to 6 months before your registration date as long as the service wasn’t one that you ‘sold on’ before your registration date. So you could claim back the VAT on your accountant’s bill from 5 months ago but you couldn’t claim back the VAT that a subcontractor charged you last week if you’ve invoiced your customer for the job before your registration date.

The good news is that you can still claim back the VAT on these pre-registration expenses even if you’ve registered under the Flat Rate Scheme (FRS).

Normally under the FRS you can only claim back the VAT on purchases of ‘capital assets’ costing over £2,000 including VAT; so as far as couriers are concerned usually just on the purchase of a van. When claiming the VAT on pre-registration expenses however you can claim back the VAT on all the purchases mentioned above as if you weren’t on the FRS. So if you were to buy your new laptop 2 weeks before you registered for VAT on the FRS then you’d still be able to claim the VAT back on it. If you bought it just after registering for VAT on the FRS you wouldn’t be able to claim the VAT unless it had cost you £1702.13 plus VAT (£2,000) or more.

The only ‘gotcha’ with regards to the FRS is that if/when you sell anything that you’ve claimed the full amount of VAT back on using the above method (your van for instance) you have to account for the VAT on the sale at the normal rate rather than at the FRS rate. So if you’ve bought your van 3 years ago for £8,000 (plus £1,400 VAT) and claimed back the VAT, then when you sell it next year for £1,500 (plus £262.50 VAT) you’ll have to pay HMRC the full £262.50 VAT when you sell it, rather than £135 under the FRS.

Given that you’ll almost certainly be within a year or so of starting your courier business when you decide to register for VAT, it’s certainly worth going back and claiming all that you’re entitled to.

Posted under Courier Financial Issues, VAT

Posted by Alec at 7:28 pm, July 8, 2008

Courier ‘Business Opportunity’ – owner-drivers only

I know that quite a few people seem to reach this page when they’re searching for freelance same day courier work etc. Please read this page if that’s what you were looking for.

Ah, so Earnings = Income – Fuel Cost? You’re providing the vans and the insurance yourself are you?

These “standard business expenses” which “should be part of ur business model” are paid for FROM YOUR GROSS TURNOVER.

There’s no way around: Profit = Turnover – Fuel – OTHER EXPENSES.

Your mindless assumption that standing costs will disappear just because they’re already included in someone’s business plan are laughable.

Without wishiing to get too personal, your obvious lack of mathematical and business skills demonstrate admirably why an owner-driver would be exceptionally foolish to allow you £7000 credit.

I’d agree to an extent that it’s easily possible to make ‘a wage’ running at those rates. I just don’t think I’d personally be happy putting all my eggs in one basket by relying on one small, recently formed business for all my work while at the same time supplying them with a line of credit that no bank would agree to without security.

To put it bluntly, it’s one thing working for TNT or DHL at those rates, it’s quite a different thing working for you, or working for us for that matter if we offered those payment terms.

Posted under Courier Basics, Courier Financial Issues

Posted by Alec at 9:30 am, July 4, 2008