Advice on late payers and adding late payment charges to invoices

[ScottyTaylor]

Hi, We are a small cleaning company and recently we have a few commercial clients who need to be constantly chased for paying late. I know this is the norm in the industry but was wondering can we add late payment charges to our invoices. Currently we send an invoice after the first months cleaning service and payment is expected on receipt of the invoice. We don't offer any payment terms like 30 days. However most of the clients pay on time but the larger firms seem to delay paying us and it messes up our cash flow. What is reasonable to charge for late payers and how would we word it on the invoice? Thank you.

 

[matlob]

You can add late payment fees and interest to late payments. I would clearly state on each invoice when payment is due so any charges are clear.
You can add fee of £40 to £100 on top of the interest depending on value of the invoice

See https://www.gov.uk/late-commercial-payments-interest-debt-recovery

 

[ScottyTaylor]

Thank you will have a look at the link. So we can charge up to £40 for debts up to £999
and we charge daily interest. Could we set our payment terms for example invoice is due for payment within 7 days of receipt of invoice and after that interest is charged at xxx % a day and a £40 penalty is charges in addition to that? What % interest could be charged per day?

 

[bovine]

Although you can charge, it should probably only be used as a last resort.

I think the reality is your expectations arent matching the expectations of the accounts departments you are dealing with. Larger companies are generally not good at paying things quickly. They have a process to follow and may not do payment runs very often. The trick to getting paid is to understand what you need to do to get paid when you want. Often it will involve adjusting your expectations accordingly.

Its not ideal and if payment terms were agreed they should be stuck to. But there is no point fighting against large company accounts departments.

Obviously some will still try to not pay, but its working out what type of customer they are. Just dont let anyone dictate 60 day or longer payment terms, thats just crazy. You may have to agree to 30 day terms or not deal with those customers. Only you can decide what is worthwhile.

 

[Nochexman]

Scotty, have you considered asking these late payers to pay in advance? Something to think about going forward.

 

[ScottyTaylor]

Thanks for all the info. I think rather than have "Payment due on receipt" i should be more specific and specify a date it is due by and then say about later payment charges. I am led to belive i can charge 8.5% interest on late payments? how can i word this and how would i calculate it? Is it 8.5% yearly interest? Please advise. In a nutshell i want to be firmer on our payment terms to hurry my clients up to pay quicker as currently we are too nice and just say payment is due and nothing else

 

[matlob]

I generally only make the charge if they have not paid and all attempts to collect, phone, email fall on deaf ears. They usually say 'how can you charge £40' but I just point them to the hmrc page

I would state invoice date and due by date on the invoice. Like others have said larger companies never pay straight away as there is a system

Below taken from hmrc

If your business were owed £1,000 and the Bank of England base rate were 0.5%:

• the annual statutory interest on this would be £85 (1,000 x 0.085 = £85)
• divide £85 by 365 to get the daily interest: 23p a day (85 / 365 = 0.23)
• after 50 days this would be £11.50 (50 x 0.23 = 11.50)

 

[ScottyTaylor]

Here is my new wording for the bottom of my invoices. Does this make sense? Feel free to re word if you want:
Payment Terms: Payment is now due as stated on the invoice. Late payments made after 7 days from due date could incur a charge in addition to the 8.5% annual interest charged daily.

 

[14Steve14]

If it was me, I would also add into your text something like "As per the late Payment Regulations" just so people know why you are adding it on. It then looks better as its a legal charge and not just something you are adding.

 

[Bob Morgan]

Ensure that your Contact/Agreement makes clear that you will STOP providing services in the case of Non-Payment - When worded correctly, this becomes a very simple 'Breach of Contract!' Interest and Non-Payment Charges should be seen as a 'Last Resort!' Sometimes, withdrawing services at a crucial point for a Client, might tend to 'Concentrate Minds!' Be prepared to go through all of the histrionics of "You will never work for us again!" - But, do you really want to work for Clients who do not pay?

 

[ScottyTaylor]

Thank you all for the advice. We have added new payment terms to each invoice. Hopefully that will speed a few up and make cashflow better.

 

[Mark Laurie]

You could always make it part of your contract/terms of service that payment is made via DD 7 days after invoice submitted. We now do this and it has worked a treat.