Answer: The Better Payment Practice Campaign website contains some useful information on credit management and getting bills paid on time. The site includes reference to the Late Payment of Commercial Debt (Interest) Act 1998, which gives businesses an entitlement to charge interest on overdue invoices. For contracts dated on or after 7 August 2002, the late payment interest rate is 8 per cent plus the reference rate (also called ‘statutory interest’) which is the Bank of England base rate for business to business transactions.
The reference rate is recalculated every six months so you need to be aware when the invoice was raised, how long it is overdue (the Act assumes a normal payment period is 30 days) and the rate of interest chargeable for the period it is overdue. You will find the details in the section Calculate what you are owed in interest due to Late Payment.
In 2013, further amendments were made to the existing legislation requiring private businesses to pay within 60 days and public sector organisations within 30 days. Additional fees can now also be charged for recovery and plus other changes and the compensation entitlement for these elements varies in accordance with the size of the debt.
In many cases simply threatening to charge interest is sufficient to get a dialogue between customer and supplier over the terms of payment. However, sometimes customers react badly to the threat of an interest charge so it is wise to tread carefully. It is best to raise the issue of your payment terms before accepting a customer’s order and to come to an agreement. Similarly, it is advisable to include the fact that you will charge interest on overdue debts in your terms and condition of trade.