Interest on Invoices

[Mitcher]

Hi,

I'm going through my aged debtors' list and sorting out the interest to be added to the accounts. Is interest always added on a daily basis? I ask because I remember working for someone who said 'payment within 30 days' and, if it wasn't paid, then added 10% (in those days) of the bill in one go. He also added that to the end of his bill so that a lot of people thought that that final number was the amount due from them, which was a bit crafty.

I've been working the interest out on a daily basis (using formulae given on links from this site, suggested in other posts). And, is it right that once the 30 days has gone over, you can charge the interest from the date of date of the invoice? ie one day late would be 31 days' of interest? (I'm very new to this lark!)

Mitcher

 

[iridessa]

I think you need to be clear in your own mind on what your terms and conditions are....and make this clear to your customers too.

So you could say all payments are due in 7 days, 14 days, 30 days and if unpaid interest runs from the due date of payment. This way there is no mis-understanding.

If someone didn't pay and you ended up going to court then there interest can run on a daily basis at the statutory rate...not sure what this is now but you can check with a local Court.

As long as you are not going to charge excessive interest you should be ok...keep it at the statutory rate or below if I were you.

If your invoices and t&c are clear from the outset then you shouldn't then have a problem charging interest daily when someone doesn't pay.

If you haven't made things crystal clear then this could be when you run into problems ...so make up your mind now, make it clear on your paperwork and then stick with it!

 

[GRDCredit]

Are you charging interest at the statutory rate on B2B debts?

If so why not use the calculator here http://www.payontime.co.uk/calculator/statutory.html

In direct answer to your question interest is charged only on the day it falls overdue - i.e. if an invoice fall dues on 31 October you can only charge interest from 1st November until paid.

Interest is charged on a daily basis

In addition don't forget the late payment charge which in most cases will be greater than the interest charged - full details on link above

If you are dealing with individuals or you have your own rates set out in your terms and conditions ignore all of the above!

Needless to say, if you need any help drop me a PM

 

[Mitcher]

Thanks for that. I've been on that site and have been using their formula to work out the daily interest - when I used the table given in your post, Geoff, it seemed to work it out from the date of the invoice. That's why I was confused. As I don't know what a B2B Contract is, I don't think that's what I'm dealing with!

As for our 'terms and conditions': at present, there's a line on the bottom of the invoice, saying, 'Payment due within 30 days from date of invoice. Payments made after 30 days will be subject to interest charges.' Is that too vague? Can I now not tell them what the interest charges will be? I've changed the line to say '....subject to interest charges at 8% above the base rate' on the invoices I've sent out this month, with a view to revising them properly next month.

Mitcher

 

[GRDCredit]

Thanks for that. I've been on that site and have been using their formula to work out the daily interest - when I used the table given in your post, Geoff, it seemed to work it out from the date of the invoice. That's why I was confused. As I don't know what a B2B Contract is, I don't think that's what I'm dealing with!

As for our 'terms and conditions': at present, there's a line on the bottom of the invoice, saying, 'Payment due within 30 days from date of invoice. Payments made after 30 days will be subject to interest charges.' Is that too vague? Can I now not tell them what the interest charges will be? I've changed the line to say '....subject to interest charges at 8% above the base rate' on the invoices I've sent out this month, with a view to revising them properly next month.

Mitcher

Sorry - ref B2B. Short form of business to business. Are all your customers businesses or individuals/Joe Public? The site I have directed you to applies only to Business to Business transactions.

Ref your first point - when I key in the details it calculates interest only from the due date! Can you give me an example of what you are keying in - i.e. invoice date, due date and value - and I will look a bit deeper

Cheers

 

[Mitcher]

I've sent you a private message, Geoff.
Mitcher