Charging Interest on Late Payments
Charging interest on late payments
Having an efficient credit control system is vital if you want to maximise cash flow availability. Late payments create cash flow problems. Using your legal right to claim interest from late-paying customers can encourage customers to pay on time.
Every business has a statutory right to charge interest on late payments. The right to claim interest does not apply to sales to consumers.
Interest starts being chargeable from the end of the agreed credit period. If you have not agreed credit terms, normally a payment is late after 30 days.
How much interest can I charge?
The law gives you the right to charge interest at the Bank of England base rate plus 8%
The up to date base rate can be found on the Bank of England Website.
You can also claim compensation?
Yes, you can claim £40 for debts of less than £1,000, £70 for debts between £1,000 and £10,000 and £100 for debts of £10,000 or more.
If your costs are higher than this (for example, if you are using a debt collection agency) you can claim ‘reasonable’ recovery costs.
You can only claim these costs if you are claiming the interest due under the Act. If you do not claim interest, or you claim it under a contractual provision or the provisions of a different Act, you cannot claim the costs.
Use our Late Payment Calculator to see how much Interest and Compensation you can claim.
Should you really charge interest?
Although the rate of interest is high, the total amount of money involved may only be a few pounds. Think what charging interest and costs might do to your relationships with your customers.
Consider how customers are likely to react.
Assess the effectiveness of your credit control system. If you are ineffective at collecting money owed to you, customers may strongly object to being asked to pay interest and debt-recovery costs.
Outsource your credit control or full sales ledger to us and save money!
Make sure you are using a credit control system that is appropriate to your business needs.