'I've been working under a contract since December. Each of my invoices so far has been paid late. I've complained, but it hasn't made any difference.'
Under the express terms of your contract, you are entitled to invoice monthly and to be paid within 7 days of invoice. Each invoice was for £10,000; December's was paid 5 days late, and January and February 6 days late. There is no express provision in the contract which might entitle you to terminate for late payment.
Failure to pay on the date specified in the contract is a breach of contract. In the absence of any express term in the contract covering the point, we have to fall back on the general law governing contracts.
Breaches of contract range from trivial, through serious, to fundamental. A term providing that you will get your timesheet in by 1600 Monday would be breached if the timesheet arrived at 1700 that day. However, one would not expect a contract to be terminated for such a trivial breach. The general rule is that where a contract provides that a party is to do something by a particular date or time, then whilst not doing that 'something' on time may be a breach, it is a breach which will be remedied if the 'something' is in fact done later.
Before you can be justified in treating such a breach as grounds for terminating the contract, you have to 'make time of the essence' (ie, of the essence of the contract). Sometimes a contract may expressly state that time is of the essence, but where it does not, you have to spell out to the other party (preferably in writing) that from this point on, you expect to be paid on the date payment is contractually due, and that if you are not paid strictly on that date, then you will consider yourself at liberty to terminate the contract for their breach.
Having done that, then if they are late again, you will be entitled to terminate without notice. If you do so, you will be entitled to be paid for the work you have done, and to damages - on the face of it, the damages will be the amount you would have earned under the contract, up to the earliest point the other party could lawfully have terminated it - but subject you your own duty to 'mitigate', ie to minimise your losses by trying to find another contract.
What, though, if you don't want to terminate? Maybe you want to demand interest, either for its own sake, or to make sufficient of a nuisance of yourself to persuade them to behave, or both.
Until recently, the rule has been that if there is no express contractual entitlement to interest, then you would only become entitled to claim interest if you actually commenced Court proceedings for the debt itself - in which case you could claim at 8%. Once the debt was paid, then you couldn't commence proceedings for it, and so if it was paid before you sued then you lost such limited rights to interest as you might otherwise have had.
The law here has recently changed. Under the imaginatively entitled 'Late Payment of Commercial Debts (Interest) Act 1998', a term relating to interest is implied into certain contracts. This Act is being brought into force in stages. At present, the conditions you have to satisfy are:
Satisfy these conditions, and you're entitled to interest at 8% over the 'official dealing rate' (find this under 'UK clearing bank base lending rates' in the 'London Money Rates' section of the FT on the 'Currencies and Money' page) - that rate is currently 5.5%, so the interest rate you are entitled to is 13.5%. Do the arithmetic - interest on £10,000 at 13.5% is £3.70 per day - and invoice for it (don't forget interest is zero-rated - so don't add VAT).
If you are unable to satisfy any one of the above conditions, then this new Act will not help you, and the previous rules will continue to apply.
When it comes down to it though, unless you are a bank, interest is a poor compensation for not having the money you've earned and doubtless need for your own purposes. Before you enter a contract, satisfy yourself as best you can that the other party has a good reputation for paying on time - you doubtless intend to honour the terms of the contract yourself, and are entitled to expect the other party to do likewise.
19th March 1999
I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.
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