Late payments have been affecting almost every industry in the UK and the issue has only been exacerbated by the coronavirus pandemic. Chasing debts yourself can be a frustrating and often exhausting process. Research conducted by global business analytics provider, Dun & Bradstreet, found that small businesses are owed, on average, over £130k from late payments over the last twelve months. They found that almost 20% of all payments made to small businesses were arriving late. If you’re struggling to keep on top of your debtors and get your invoices paid on time, you might want to consider charging interest on your commercial debts to try and encourage payments to be made before interest spirals.
Why can I charge interest on my commercial debts?
The government introduced the Late Payment of Commercial Debts Act over twenty years ago, in 1998. The purpose of the Act was to enable businesses a legal right to enforce interest on top of late payments for commercial debts. The Act also allows businesses to claim reasonable costs for debt recovery against their debtor, should they need to escalate the debt recovery process further. In 2013, additional protection was put in place when the government set out regulations for late payments where no payment terms had been established. Based on the update of the Late Payment of Commercial Debts Act in 2013, a payment can be classed as late, 30 days after the invoice has been received by the customer or 30 days after the goods or services (if this occurs after the invoice was received).
How do I charge interest on my commercial debts?
The Late Payment of Commercial Debts Act sets out the rules for applying interest to late payers as follows:
- You can charge interest of 8% in addition to the Bank of England base rate, which is currently set at 0.1% since March 2020. Keep an eye on the rate, it’s currently the lowest on record.
But, this interest is only applicable if you don’t already have terms in your contract that already stipulate interest rates.
You may also wish to claim compensation as well as reasonable costs for debt recovery (if the compensation does not already cover your costs).
Compensation can be charged as follows:
- Debts under £1,000 = £40
- Debts under £10,000 = £70
- Debts over £10,000 = £100
If you have tried all methods of debt recovery at your disposal, including charging interest on your commercial debts and your customer is still not forthcoming then it might be time to outsource your debt collection to us. At My Debt Recovery, our team of experts will take on your debt collection and use all of the tools at our disposal to reach a positive outcome. Drop us a line today to see how we can help.