What are Late Payment charges?

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The Late Payment of Commercial Debts (Interest) Act 1998 gives you the right to claim interest and compensation for late payments.

This is a statutory right – your customer doesn’t have to agree to it, you don’t have to inform them in advance that you intend to charge them if they pay late and you are not permitted to agree in advance to waive late payment fees unless a suitable alternative form of late payment penalty is agreed.

For invoices up to £999.99 you can charge £40 PER LATE INVOICE. For invoices of between £1,000.00 and £9,999.99 you can charge £70 PER INVOICE. You can also charge interest on a daily basis, currently at a rate of 13.5% per annum.

You don’t charge VAT on the late payment or the interest and you don’t charge the late payment fee on a recurring basis.

You don’t HAVE to charge the late payment fee but unless you’ve specifically agreed to waive the fee the late payer still owes it to you EVEN AFTER THEY’VE PAID THE ORIGINAL DEBT. The late payment fee is like any other debt – you have up to 6 years to recover it from the late payer and remember that it’s chargeable on EVERY payment received late over that period.

You may find that it’s best to use the threat of the late payment legislation as a tool to get late payers to pay up. For example, our standard collection letter includes:

“As you may be aware, under the Late Payment of Commercial Debts (Interest) Act 1998 we have a statutory right to charge interest on overdue payments. The current rate of interest is 13.5%. We also have a statutory right to charge compensation of between £40 and £100 towards our collection costs. You will notice that your statement includes an invoice for the late payment charges. IF WE RECEIVE PAYMENT OF ALL OTHER OUTSTANDING INVOICES WITHIN 7 DAYS OF THIS LETTER WE WILL NOT PERSUE THESE CHARGES.”

This at least gives the customer the chance to pay up straight away and avoid the extra charges. It’s worth mentioning that if you use this approach and they do pay up within the 7 days then you’ve lost your right to go back within 6 years and claim the late payment charges.

Thomas Higgins solicitors will do the whole thing for you for a small fee. Direct Route are often recommended for business to business debt collection but I’ve heard several reports that they seem unwilling to collect late payment charges.

Example Invoice for Late Payment Charge & Interest

Late Payment Penalties Information Sheet

Overdue account letter – Example 1

Overdue account letter – Example 2

If you base your letter on these then don’t forget to change the interest rate to the current rate – it’s 13.5%pa from 1st January 2008 to 30th June 2008: the current rate is shown in the centre of the page at www.payontime.co.uk.

Better Payment Practice Campaign

Posted under Finance and Accounting

Posted by Alec at 9:50 am, April 5, 2008

1 Comment so far

  1. Alec added on  July 8th, 2008 at 12:09 pm

    The interest rate for the period 1st July 2008 to 31st December 2008 is 13.0% per annum.

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