Our blog keeps you in‑the‑know when it comes to the industry news and updates relevant to you and your business. You'll also find useful guides to help you operate more effectively and efficiently today and into the future.
According to BACS, almost half of the UK’s small to medium sized businesses are being paid late, with the average waiting for £32,185 in overdue payments. 42% of SMB business owners spend up to 4 hours a week chasing late payments. This is time that could be spent working on your business, and over time can lead to a loss of passion for what you do.
Unless agreed otherwise, you are legally entitled to charge statutory interest rate if the payment is not made within 60 days to business-to-business transactions, and 30 days for business to public sector transactions.
Statutory interest can be charged at 8% above the Bank of England’s base rate (0.1% as of 19/03/20). If the payment is due in the 1st 6 months of the year, use the base rate issued on 31/12. If the payment is due in the 2nd 6 months of the year, use the base rate issued on 30/06. As the current rate is 0.1%, you can charge 8.1%.
Calculating late payment interest formula:Debt x Interest Rate % x Number of days late ÷ 365
An example given by gov.uk is as follows:Business is owed £1,000 base rate at 0.1%• Annual statutory interest = £81 (£1,000 x 0.081 = £81)• Divide £81 by 365 = daily interest rate of 22p (85 ÷ 365 = 0.22)• After 50 days the rate would be £11 (50 x 0.22 = £11)
Don’t forget to send a new invoice if you add interest to the money you are owed!
You can also add additional charges, at fixed rates of:• £40 up to £999.99• £70 from £1,000 to £9999.99• £100 for £10,000
Make sure that when you are drawing up a contract with a client, you have clear payment terms. Highlight what needs to be paid, when it needs to be paid, and any penalties that will be included if there is a failure to pay. Add a reminder of your payment terms with each invoice, this will ensure they won’t be “surprised” with penalties or deadlines.
Always bear in mind the interest rate stated in the existing contract when sending invoices, as this cannot change.
Send invoices promptly in order to avoid late payments. Don’t forget to include:• Company name/logo, registered address and company number (if applicable)• Terms and conditions• Details of the service/product• Reference/order number• Amount due• Invoice date and number• Customers name and address• Your payment details• If relevant, include VAT charge, VAT registration number and breakdown
Take time to consider how you can make it easier for your customers to pay you. The easier it is for them, the less chance there is of a late or overdue payment. Send reminders when they are able to pay, allow them to pay in a way that suits them, offer ways to pay there and then, and always include payment details in all reminders.
Communication is key, inside and outside of business. Speak to your customer directly - the earlier you do, the likeliness of payment increases. Work alongside them to solve the problem they are facing that has resulted in a late payment. Come up with a solution together, this could include changing the payment date or offering instalments.
If you are collecting recurring payments, it’s best to set up an automatic payment method such as a standing order or a direct debit.
Often sometimes all it takes is a little reminder to job the clients memory. Send a reminder a few days before the payment is due, and follow up late payments with emails and phone calls.
To save time and effort, you can automate reminder emails using automation software’s such as OptinMonster or RafflePress.