How do you apply the Late Payment of Commercial Debt to your invoices?

What is The Late Payment of Commercial

The Late Payment of Commercial Debts (Interest) Act 1998 is a Statutory instrument made on 4 October 1998 which came into force in November 1998.

Can anyone apply late payment legislation?

It applies to commercial transactions. The legislation may be applied to a business debt between a limited company, sole traders, partnerships or any mix of business entities.

It does not apply to consumers. For example, if a member of the public orders goods or services from you and doesn’t pay, you can’t apply the late payment legislation.

How to apply Late Payment of Commercial Debt Interest

How to apply Late Payment of Commercial Debt Interest

When is an invoice overdue?

It depends what your payment terms are but if the invoice doesn’t state any terms, the default is 30 days after the date of the invoice.

What if I haven’t got a contract with the customer?

You can still claim interest on overdue invoices but before starting any work you should always have a contract in place and agree terms before you invoice. That way you are more likely to get paid on time because a contract clearly sets out who’s doing what, by when and how payment will be made.

Did you get a purchase order and did you include the reference on the invoice?

How do I calculate the interest?

The law gives you the right to charge interest at the Bank of England base rate plus 8%

For example, if the base rate is 0.5%, you could charge interest at 8.5%.

How do I find the Bank of England Base rate?

What about the cost of recovering payment

If you apply late payment charges, you are also entitled to claim for the cost of recovering the payment. You charge an administration fixed sum for the cost of recovering a late commercial payment

£40 for debts of less than £1,000

£70 for debts between £1,000 and £10,000

£100 for debts of £10,000 or more.

How can I apply it to invoices already overdue?

You should work out the charges and raise a new invoice

How will it affect my book-keeping records?

You record the new invoice as you normally would do.

What should I say to my customers

Presumably, you’ve already picked up the phone to remind them. Check if you’ve done everything correctly. There are so many reasons why invoices don’t get paid on time

So now is the time to let your customer know that despite reminders their payment is overdue and that you will charge interest on the late payment. Send a summary in writing. Refer to the original invoice, stating the total amount outstanding, state the total amount of interest due, the daily interest rate applied and how they need to pay you.

What if my customer complains

Applying late payment interest on overdue invoices is covered by law so although your customer may be unwilling to pay interest, you are more than entitled to claim it. It’s the law and you can refer them to UK Government website – Late commercial payments: charging interest and debt recovery.

Need help with overdue invoices? Call me today.

I help businesses get paid quicker. Simple as that. I’ve turned a long career in credit control into a service designed to improve your bottom line. My clients know me as the Contracts Lady and the Cash Flow Queen.

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