Fair Trading

Businesses - Paying Your Bills & Getting Paid On Time

by Sandy Nicol

Late Payment of Commercial Debts (Interest) Act 1998
Late Payments of Commercial Debts Regulations 2002

The late payment of bills can be frustrating and can cause serious cash flow problems for businesses of any size. The above-mentioned legislation aims to discourage late payments by allowing businesses to charge each other (not consumers) interest on overdue invoices.

Unless your business terms and conditions state otherwise, an invoice becomes due after 30 days. If it is not paid within this time then you are entitled to charge interest.

It's not compulsory to charge interest but if you do it should be calculated at the Bank of England base rate plus eight percent. So if the base rate is 4.5% then you can charge interest at 12.5%. The current base rate is available at www.pims-online.co.uk.

To calculate how much interest you are owed you can use the online interest calculator at www.payontime.co.uk This site also has sample business letters which might be worth copying - and you can even sign up to the 'Better Payment Practice Code', signifying that you are committed to a responsible attitude to paying on time. Signing up allows participating businesses to use the code logo.

The legislation also allows you to claim compensation for late payment debt recovery costs. For debts up to £999 you can claim £40 and for debts between £1000 and £9999 it rises to £70.

Of course you don't have to charge interest; it has to be a business decision as to whether this action might jeopardise your business relationships. However, it might be worthwhile stating, on your business-to-business invoices, that interest and compensation for debt recovery costs will be charged on any overdue invoices based on the entitlements prescribed by the said legislation.