Receiving late commercial payments often interrupts company flow. This page explains how much a business can charge in interest and debt recovery for a late payment.
LATE PAYMENTS: So, when does a commercial payment become late?
Account managers often have difficulties if another company pays late for their goods. But, the law allows you to claim interest and the costs of debt recovery.
You might already have an agreement of when the money should get paid. If not, the law makes a payment late after 30 days. This applies to business transactions and public authorities after the date when:
Note: The law allows agreements of longer periods than 30 days. But, periods that are longer than 60 days must be fair to both businesses.
A business can charge interest if another business is late paying for goods or for services. UK employment laws call it 'statutory interest'. The current statutory interest rate is 8% plus the Bank of England base rate for B2B transactions.
Note: Statutory interest will not apply if a contract states a different rate of interest. Contracts with public authorities cannot use a lower interest rate. Always check the Bank of England base rate for current rates.
An Example: A company owes your business £1,000 and the Bank of England base rate for business to business transactions is 0.25%. Thus, the total amount of statutory interest would be 8% plus 0.25% (8.25%).
Note: Your business could be charging interest on late commercial payments. In this case you would send out a revised invoice if you choose to add interest to the money owed to your company.
It costs money to recover a late commercial payment. That is why you can also charge a fixed sum for recovering a business debt. This amount gets charged on top of any interest claimed on late payments.
The debt amount determines how much a business can charge to recover the money owed.
Note: Late commercial payments legislation sets these amounts in statute. The same rules apply to a supplier to claim for reasonable costs in recovering debt.
Late Commercial Payments: Charging Interest and Debt Recovery Costs on a Late Payment