For many companies across the UK Late payments aren’t a rarity and are the norm. The numbers show that around £14.2 billion in late payments every 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 reveals that the extremely British characteristic of not addressing issues is one of the reasons that contribute to businesses not being paid or not being paid. 25 percent of British small-scale enterprises are awkward talking to their clients and suppliers about the issue of money.
Small and medium-sized enterprises are especially susceptible to cash flow problems and, with late payment being a major issue in many sectors – such as the transportation industry, utilities and those in media, the risk of not being able to pay bills is real.
There are many options to pursue late invoice payments, which includes making interest charges on invoices that are due. Here are the most effective ways to increase the pressure on late payers as well in a short overview of late payments’ interest rates.
What should I do prior to charging late payment interest?
It’s important to note that charging interest for late payments should only be a final option, since it can harm your business’s relationship with the client. If you’re faced with the issue of a late payment Here are ways to handle it before you escalate the situation:
Send an email late invoices are resolved by contact. If you haven’t received payment within 1-3 days from the due date of the invoice then send an email to remind.
Contact us if the payment hasn’t been received after seven days, request an experienced member of your team to dial the number and reach out.
Send a formal email – If your initial appeal falls upon deaf ears, try to escalate the situation by making an official request for money.
In most cases it should be enough for your client to make payment. If you haven’t heard back or a response, you might need to send a final notice to inform them that you’ll charge interest for late payment.
What is the appropriate time to charge interest on late payments?
In accordance with the Late Payment of Commercial Debts Act it is possible to claim fees for debt recovery and interest If a company is behind in making payments for goods or services. Gov.uk stipulates that if the payment date is set, the payment should be paid within 30 calendar days (for the public sector) or within 60 day (for businesses). If a date for payment is not agreed upon it is considered to be late for 30 days after the date that the customer is notified of the invoice, or thirty days following the date that items or services were provided (if the latter occurs later). From this point you may begin to charge late interest on the payment.
How is the interest on late payments how is it calculated?
If a company is in the process of being not paying its bills on time and you are unable to make payment, you may apply statutory interest, of 8% in addition to that amount plus the Bank of England base rate for business-to-business transactions. At present, the Base rate of interest is 0.75 percent, however, it fluctuates every few months and you can get the most current late payment rate on the official Bank of the United Kingdom website. But, be aware that you can’t be able to claim statutory interest when an alternative rate of interest has been specified in the contract you signed. What is the procedure for late interest on payments determined? Here’s a quick illustration for businesses that are due £2,000 and has an Bank of England base rate of 0.75 percent:
The annual interest statutory in these figures would be £175 (2,000 multiplied by 0.0875 equals 175)
Divide £175 by 365 in order to determine the daily rate of interest. In this instance the interest is 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 the late payment interest You can also claim the cost of debt collection (a fixed amount for the costs of recovering all late-paying customers). But, it’s important to note that these funds are small:
In the event that you are due more than £999.99 You can claim up to £40
If you owe between £1,000 or £9,999.99 You can claim the maximum amount of £70.
If you are owed P10,000 plus, then you may be charged a maximum amount of £100
If you were to follow the same model we discussed earlier, you’d be in a position to add £70 costs for debt collection on top of your total invoice and claim up to the maximum amount of £2084.4.
There are numerous late payment interest calculators that are available online, which means you don’t have to figure out the whole amount by yourself. Here’s a link to Small Business Commissioner’s late-payment interest calculator that can assist you in determining exactly the amount you can claim.
What is the best way to charge late interest on payment?
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 have the legal authority to charge the charge. It could also be beneficial to reference prior correspondence regarding the late payment of an invoice.
If they haven’t received their payment?
If the customer hasn’t been contacted, you may have to pursue legal proceedings. This should be avoided whenever you can, as it’s the most serious option and will likely close your business relationship with the client. However, if the late payment and subsequent cash flow problems pose the greatest risk to your company and your business, there may be the only option. Before taking any action be aware of the possible costs of legal fees as well as the amount of time legal proceedings could take up. In the end, it could be beneficial to simply write off the amount that was lost.
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