Some clients pay on the nose, every time. Some pay the minute you send your invoice. Some take it to the 30 day limit and, inevitably, you’ll get some who let it lie… and lie, and lie.
You could put up with chronic late paying customers or get rid of them. Your first task is to decide whether they’re worth the hassle. If you think you want to persist with them despite their rude and selfish payment habits, there are things you can do to keep them in line.
Your first action is to be frank and open. Tell them, politely and calmly, in writing, what your payment terms are, and that you expect them to be adhered to. Next, if that doesn’t work and you still feel they’re worth the bother, the law delivers a bunch of sensible actions. Here’s the advice the UK government website provides.
What to do when a payment becomes late?
Assuming you’re operating on a B2B basis, you can claim interest and debt recovery costs on late payments.
Even if you haven’t made it clear what your payment terms are, if a business leaves it more than 30 days it’s late in the eyes of the law. That’s 30 days after they get your invoice or, if it takes place later, 30 days after the goods or service have been delivered. Of course you’re free to arrange different payment periods if you like, say 60 or even 90 days, assuming your poor, beleaguered cashflow can handle it.
You’re also allowed to charge interest on late payments from other businesses.
About charging interest on late B2B payments
You can charge late payers something called ‘statutory interest’, which is 8% plus the current Bank of England base interest rate for B2B transactions. Here’s an example of interest on a late payment.
Say someone owes you £1000 and the current Bank of England statutory interest rate is 0.5%. The interest you charge is 8% plus 0.5%, total 8.5%, which adds up to £85.
For the daily interest rate, divide by 365 to get 23p. You charge the amount owed depending on how many days late the payment is. How do you charge it? You need to send a fresh invoice with the interest included.
Claiming debt recovery costs
You can also charge a fixed sum to cover the cost of recovering the debt. These are statutory amounts set in stone by the law. If you’re owed under £1000 you can charge £40. If you’re owed between £1k and £10k the charge is £70. And if they owe you more than £10k you can charge £100.
Can we carry out basic debt recovery for you?
Yes, we can set in place a logical system to contact your late paying B2B customers, let them know the situation and do our best to bring about resolution. That might be all you need, without having to resort to the law.