In many businesses in the UK Late payments aren’t an exception but rather the norm. The statistics are clear – approximately £14.2 billion to late payment each year, and 58 percent of SMEs in the UK consider that late payment puts their company at risk of failing.
Our research on’money mutedness’ also reveals that the particular British characteristic of not addressing issues is one of the reasons that contribute to companies being either under- or not being paid. 25 percent of British small-scale businesses are awkward talking to their clients and suppliers about their money.
SME’s are most susceptible to cash flow issues and, with late payment being a major issue in many industries , including the transportation industry, utilities and in the industry of media – the danger of not being able to pay bills is real.
There are many options to pursue late invoices, such as making interest charges on invoices that are due. Here are the best methods to take action against late payers as well in a short overview of late payments’ interest rates.
What should I do before imposing late payment penalties?
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 facing 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 Send a friendly email to remind.
Contact us if the payment hasn’t been received after seven days, request someone more experienced on your team to dial the number and contact you.
Send a formal email – If your initial efforts fall upon deaf ears, try to escalate the situation by submitting an official request for payment.
In most cases it should be enough to get 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 on the 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 If a company is behind in the payment of goods and services. Gov.uk states that , if the payment date is established, payments must be paid in 30 or 60 days (for government agencies) or within 60 day (for commercial transactions). If a date for payment was not set the payment will be deemed to be late for 30 days after receiving 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.
What is the method by which late payment interest 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 charge statutory interest of 8%, plus an additional 8%. This is in addition to the Bank of England base rate for transactions between businesses. At present, the Base rate of interest is 0.75 percent, however, it fluctuates every few months so it is possible to get the most current late payment interest rate by logging onto the official Bank of England website. Be aware that you can’t get statutory interest if an alternative rate of interest has been specified 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 statutory interest rate in these figures would be £175 (2,000 multiplied by 0.0875 is 175)
Divide £175 by the number of days to discover the daily interest. In this instance the interest is 48p (175 + 36 = 0.48)
If the payment is 30 calendar days late, you’d be owed £14.40 (30 + 0.48 equals 14.4)
In addition to interest on late payments You can also claim cost of debt recovery (a fixed amount for the costs of recovering the late payment). But, it’s important to keep in mind that these sums are small:
In the event that you are due more than £999.99 you are able to charge up to £40
If you owe between £1,000 to £9,999.99 you are able to charge the maximum amount of £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 model we discussed previously, you’d be allowed to add £70 costs for debt collection on top of your total invoice and then claim the maximum amount of £2084.4.
There are a variety of late payment interest calculator that are available on the internet, so there’s no need to figure out the whole amount by yourself.
How do you calculate late interest on payments?
To charge your customer late interest on payments, you have to create an invoice which includes the latest 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 inability to pay your original invoice.
If they aren’t paying?
If the customer hasn’t been contacted, you may have to pursue legal proceedings. This should be avoided whenever feasible, since it’s the most drastic option and will likely cut off your connection with the client. However, if the late payment and subsequent cash flow issues pose an imminent risk to your company and your business, there may be no choice but to take action. Before taking any action take into consideration the costs associated with legal fees and the amount of time legal proceedings will take up. If you’re looking at the bigger picture, it might be beneficial to simply write off the money you lost.