According to research conducted by Siemens Financial Services, a typical SME spends 130 hours chasing outstanding invoices with unpaid invoices accounting for 14% of SMEs’ annul turnover. Clearly this is a big problem for many businesses, so what can you do about it and how can you recoup some of this wasted time and effort? In this article we are going to explain how you can legally charge your clients interest for late payments.
What is considered as late payment?
When you send an invoice to your customer or client, you will typically specify when the payment should be made by. For example, the invoice might request that payment is made within 14 days. If no set date or period has been identified on the invoice, the statutory timescale which is specified in legislation is 30 days.
Therefore, you can classify a payment as being late if it has not been received by the date or period you defined in the invoice; or 30 days if no date or period was included.
What are your rights?
The Late Payment of Commercial Debts (Interest) Act 1998 states that ALL businesses have a legal right to charge interest of 8% above the Bank of England base rate for any late payments, even if you have not previously declared this in your terms and conditions. Businesses can also claim for additional costs as follows:
- £40 for debts of £1,000 or less
- £70 for debs between £1,000 and £10,000
- £100 for debts of £10,000 or more
How to claim interest on late or unpaid invoices?
If payment has not been received by the date specified you can start charging interest immediately on a daily basis. All you need to do is write to your customer or client to advise them of this, provide them with the relevant information about how much interest they are being charged on top of their outstanding balance and make reference to the ‘Late Payment of Commercial Debts (Interest) Act 1998’.
Should you charge interest on late payments?
Legally you are completely entitled to charge interest for late payments, however there may be other factors to consider which could deter you from pursuing this. For example, if the amount owed is relatively small then the daily interest that you’ll be charging might only be a few pounds or even pennies and sending an official letter could damage your future relationship with a client who may have genuine reasons for being a few days late. There is no right or wrong answer here, but it’s up to you to weigh up the pros and cons for each individual situation.
What if they refuse to pay?
If you decide to go ahead and charge your customer or client for late payment but they refuse to pay, there are a number of options available to you including: sending reminders, controlled goods agreements, county court proceedings, statutory demands and more. We have provided more details about these options which you can read here:
[include link to other article]
If you would like help collecting any debt which is owed to you then we offer a comprehensive set of services to take away all of the hassle and we have an excellent recovery rate. Feel free to get in touch and speak to one of our expert advisors today.