There’s nothing more frustrating than having customers who won’t pay their bills. Here’s what you can do when this happens.
It’s helpful to understand why a customer isn’t paying your invoice. It could be:
All of these circumstances are unacceptable – cash flow is the lifeblood of any business, so you need to have a strategy for chasing customers for payment.
Prevention is better than cure – make sure that you’re doing all you can to stop late payment becoming an issue in the first place:
The amount of interest you can charge a business for late payment for goods or services – known as ‘statutory interest’ – is governed by regulation. This amount is currently 8% plus the Bank of England base rate for business to business transactions.
So, for example if you’re owed £1,000, the annual statutory interest would be 1,000 x 0.085 (using the base rate of 0.5% at the time of writing) = £85.
To work out the daily interest divide £85 by 365 = 23p per day.
So the statutory interest on a payment that’s late by 60 days would be 60 x 23 = £13.80.
To find out more about charging interest on late payments, go to the Late commercial payments: charging interest and debt recovery section of GOV.UK.
Can I add additional charges to cover the time and effort involved in chasing a late payment?
As well as charging interest, you’re entitled to charge a late-paying business a fixed sum for the cost of recovering a commercial payment. At the time of writing this amount is:
You could use the services of a specialist and reputable debt collecting agency. Some businesses prefer this, as it means that they don’t have to get involved personally in potentially awkward and confrontational conversations with customers they want to keep a relationship with.
You can use a debt collecting firm on a one-off or regular basis. Obviously, they will charge you for their services, and a one-off recovery is likely to be significantly more expensive than an on-going agreement.
Some agencies only deal with overdue payments, not disputed ones. For the latter, you may need to consult a solicitor who specialises in debt recovery. If you decide to use an agency or a solicitor, before you sign-up, check what their process is to make sure that they won’t just steam ahead with legal action before they’ve investigated the reason for non-payment, and consulted you about what action to take.
To find a debt collection agency, go to the website of the Credit Services Association.
To find a local solicitor who specialises in debt recovery, go to the Law Society’s solicitor database.
Finally, the Chartered Institute of Credit Management (CICM) has created a useful guide on what to do when all else fails. Click the button below to download.
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