late payment charges

[socreative]

hi
what is a reasonable amount to charge on late invoice payments? I am a sole trader. I believe it is 8%. Is this a daily rate?

 

[Christine Hough]

It depends on what you have said in your terms and conditions.

I think there is a statutory amount you can charge.
But may people instead quote more and give a discount for prompt payment.

8% per day sounds very high. It would soon be over 50% ( after 7 days)
That cannot be fair.

 

[socreative]

thanks for the reply

I have since realised that 8% a day is ridiculous. I am a new start up company so therefore am currently writing my T&C. What is reasonable to charge for late payment. I know 8% APR is statutory but this seems a little low or am I being niave??

 

[Christine Hough]

What business are you in?

Are there other ways for you to avoid late payments which you can also bring in?
May be a deposit or benchmark payments along the way.
And discount for prompt payment

It is quite right that you need to encourage prompt payment.
But you still want your customers to feel good about the transaction and refer others.

So give it thought to get them onto your side.

 

[lww]

Google for "Late Payment Of Commercial Debts Act" - in summary this lays down the rate of 8% above Bank Of England lending rate plus a fee which starts at £40. To be honest, the most important thing is always to get the bill paid, the interest threat is more there to chivvy along the slow payers!

You don't need to explicitly add terms about late payment unless you want to, what I have seen some companies include is a phrase along the lines of "we reserve the right to charge interest on late payments".

And of course this is all assuming you are offering credit - you don't have to, and depending on your business it might even make sense to insist on payment in advance. For our business we demand payment up front for private customers and our resellers, and for businesses we generally insist on proforma (ie. up front) for first order, then 30 days credit on subsequent orders. We've only had 1 customer who refused to do proformas but they were a huge local private company so we cuold easily have turned up and taken the stock back anyway

 

[harryboon]

My friend runs his own business and in his T&C's it states 14 days payment or 25% will be added, all clients sign it and you know what?

He has never added the 25% and only had 2-3 pay a little late. I think it works well if I am honest.

 

[SteveSant]

Yup... use the base rate plus a handling fee. If you go over the top, your client could contest it in court... much time and money wasted. Besides which, your best bet early on is to be tighter on your credit control. I simply don't allow anyone to owe me more than a few hundred quid until they have established a track record. If they don't like it, then bye bye... I am an honest trader, so if people can't respect that, then they have to go elsewhere. You make your bed...

 

[seanstevens]

Late Payment Legislation

 

[Geoff T]

"we reserve the right to charge interest on late payments".

try this...

"We reserve the right to charge for late payments in accordance with The Late Payments of Commercial Debts (Interest) Act 1998, and subsequent legislation"

This allows for interest as previously stated (8% above Bank of England base rate for commercial, or 8% for consumer, per day from date invoice fell due to the date of the notice)

It also allows you to charge compensation charges as follows:

invoice valued to £999 = £40

£1,000 - £9,999 = £70

£10,000 + = £100

But the statement on it's own will suffice - as these are statutory rights for all businesses.

HTH...

OR - you could follow Sean's quicker link which spells it out too! (Oh to be young(er) again!) Well done Sean!

 

[seanstevens]

Hey Geoff, new photo

 

[Geoff T]

Hey Geoff, new photo

Yes mate - why should I be the only one (apart from Mrs T) who has to suffer?!?

 

[GRDCredit]

(apart from Mrs T) who has to suffer?!?

Mrs Thatcher?

 

[14Steve14]

try this...

"We reserve the right to charge for late payments in accordance with The Late Payments of Commercial Debts (Interest) Act 1998, and subsequent legislation"

This allows for interest as previously stated (8% above Bank of England base rate for commercial, or 8% for consumer, per day from date invoice fell due to the date of the notice)

It also allows you to charge compensation charges as follows:

invoice valued to £999 = £40

£1,000 - £9,999 = £70

£10,000 + = £100

But the statement on it's own will suffice - as these are statutory rights for all businesses.

HTH...

OR - you could follow Sean's quicker link which spells it out too! (Oh to be young(er) again!) Well done Sean!

I may be wrong but i didnt think that you could add interest under this legislation on consumer debts. If you want to add interest on consumer debts, i would add it seperately in your terms and conditions.

 

[cpcm credit management]

You are right...

The charges are strictly b2b. I think the phrasing is when "when both parties are acting in the course of business"

 

[Geoff T]

I may be wrong but i didnt think that you could add interest under this legislation on consumer debts. If you want to add interest on consumer debts, i would add it seperately in your terms and conditions.

You are right...

The charges are strictly b2b. I think the phrasing is when "when both parties are acting in the course of business"

Agreed - sorry if my previous confused the issue for the OP - I am a "b2b guy" - I'll have to remember to add that caveat in future...

 

[John Willson]

Hi,i think 8% per day too much high.

 

[Geoff T]

Hi,i think 8% per day too much high.

Why? :|

We're talking 8% per day after all - and it costs those that don't get paid more than that (if they're using an overdraft) - try this to see how much a £1,000 unpaid invoice is worth in interest for 6mths - what would your overdraft on £1k cost for that period?

 

[14Steve14]

Hi,i think 8% per day too much high.

8% a day is not that much. A £1000 debt which has been owing for 6 months as the other poster suggested would allow you to collect 48.90 in interest.( 27p a day) You are able to add on 70-00 costs. Your debt is now 1118.90. What you have to bear in mind is that this is legislation, all costs are laid down by the government.

To look at it from another point of view. If you have an overdraft to cover the 1000 you are owed, you would be paying somewhere near the same total. You then have to allow something for your additional costs in trying to collect the money. There your time, the cost of writting and posting letters and all the additional phone calls you have had to make.

Now the additional 118.90 starts to look no where near enough.

This legislation is there for a reason, so it should be used.

 

[Geoff T]

8% a day is not that much. A £1000 debt which has been owing for 6 months as the other poster suggested would allow you to collect 48.90 in interest.( 27p a day) You are able to add on 70-00 costs. Your debt is now 1118.90. What you have to bear in mind is that this is legislation, all costs are laid down by the government.

To look at it from another point of view. If you have an overdraft to cover the 1000 you are owed, you would be paying somewhere near the same total. You then have to allow something for your additional costs in trying to collect the money. There your time, the cost of writting and posting letters and all the additional phone calls you have had to make.

Now the additional 118.90 starts to look no where near enough.

This legislation is there for a reason, so it should be used.

"the other poster" thanks you for your kind addition of numbers to prove the point...