For many companies across the UK Late payments aren’t an exception but rather the norm. The numbers show that around £14.2 billion to late payment each year, and 58 percent of SMEs in the UK think that late payments put their company at risk of going under.
Our research on’money mutedness’ also shows that the extremely British characteristic of not addressing issues is one of the reasons that contribute to companies being either under- or not paid. 25 percent of British small-scale enterprises are uncomfortable speaking to their customers and suppliers about the issue of money.
SME’s are most susceptible to cash flow issues and, with late payment increasing in a variety of industries , including the transportation industry, utilities and those in media, the danger of not being able to pay bills is real.
There are many options to pursue late invoices, such as the possibility of charging interest on bills that are overdue. Here are a few of the best methods to take action against late payers as well in a short review of the late-payment interest rate.
What are the steps I should take before imposing late payment penalties?
It is important to remember that charging interest for late payments should only be a last resort as it can harm your business’s relationship with its customer. If you’re facing an unpaid bill Here are the steps you should take prior to escalating the issue:
Send an email late invoices can be resolved simply by contact. If you haven’t received payment within 1-3 days of the date for payment then send an email to remind.
Call if the payment hasn’t been received within 7 days, you can ask someone more experienced on your team to dial the number and contact you.
Send a formal email – If your initial appeal falls on deaf ears, you can escalate the situation by making an official request for payment.
In most cases it should be enough to get your client to make payment. However, if you aren’t receiving a response then you might have to send a final notification stating that you’ll be charging interest for late payment.
What is the appropriate time to charge interest for late payment?
In accordance with the Late Payment of Commercial Debts Act it is possible to claim the cost of interest and debt recovery when a company is in the process of being late in making payments for goods or services. Gov.uk states that , if an agreed payment date has been set, the payment should be paid within 30 calendar days (for government agencies) or within 60 day (for commercial transactions). If a payment deadline is not agreed upon the payment will be deemed to be late for 30 days after the date that the customer is notified of the invoice, or within 30 days of the time the items or services are delivered (if it is later). After this you may begin to charge late interest on the payment.
How is the interest on late payments determined?
If a company is not paying its bills on time it is able to apply statutory interest, that is 8 percent, plus an additional 8%. This is in addition to the Bank of England base rate for business-to-business transactions. At present, the basis rate for late payments is 0.75 percent, however, it is subject to change every now and then so it is possible to get the most current late payment interest rate by logging onto the official Bank of the United Kingdom website. But, be aware that you can’t get statutory interest if you have a different interest rate is stated in the contract you signed. What is the procedure for late interest on payment determined? Here’s an example of an organization that’s in debt of £2,000, with an Bank of England base rate of 0.75 percent:
The annual interest statutory in these figures would be £175 (2,000 times 0.0875 equals 175)
Divide £175 by the number of days to determine the daily rate of interest. In this instance it’s 48p (175 x 36 = 0.48)
If you assume that the payment is 30 days overdue, you’d be owed £14.40 (30 times 0.48 equals 14.4)
In addition to interest on late payments You can also claim the cost of debt collection (a fixed amount for the costs of recovering the late payment). But, it’s important to keep in mind that these funds are small:
In the event that you are due more than £999.99 You can claim the maximum amount of £40
If you owe between £1,000 or £9,999.99 You can claim up to £70.
If you owe £10,000 plus, then you are able to be charged a maximum amount of £100
In the same way, if you follow the same example as we did earlier, you’d be in a position to add £70 costs for debt collection to the total amount of your invoice and then claim the maximum amount of £2084.4.
There are numerous late payment calculators online, which means there’s no need to figure out the total amount by yourself. Here’s a link for a late payment interest calculator, which will aid you in determining the amount you can claim.
How do you calculate late interest on payments?
To be able to charge your customer for late interest on payment, you’ll need to create an invoice with the updated price. Make sure that you state in the bill that it is a late payment charge , and also note that you are legally able to charge the charge. It could be beneficial to refer back to previous correspondence concerning the inability to pay an invoice.
If they aren’t paying?
If your customer has not been contacted, you may have to take legal action. It is best to avoid this if you can, as it’s the most drastic option and could close your business relationship with the client. However, if the late payment and the subsequent cash flow issues pose an imminent risk to your company then you might have no choice but to take action. Before taking any action take into consideration the costs of legal fees as well as the amount of time legal proceedings could take up. In the end, it could be worthwhile to write off the amount that was lost.