During the COVID-19 Pandemic, circumstances have not changed with regard to paying and receiving payment for outstanding invoices. Because of this, all businesses should be aware and up to date with the relevant law. The Late Payment of Commercial Debts (Interest) Act 1998 serves as a safety net for businesses, offering two levels of protection, firstly and primarily, and it is in place to defer late payments from happening in the first place. Secondly, if payments do come in late, it compensates creditors for those late payments. As a result, when an invoice is not paid on time you will then be able to claim interest on top of the outstanding debt and compensation for the invoice not being paid on time.
When does a payment actually become late?
Once a payment date has been agreed upon, it is generally accepted that for public authorities, payment must be within 30 days, and for business transactions it is 60 days. However, on the condition that it is fair to both businesses, a longer period of time can be agreed upon. Under the circumstances that there is no payment date set, then the law states that the payment is late 30 days after the invoice is received by the customer or the goods/service has had been delivered or provided.
What interest can I claim on late payments?
This interest is known as statutory interest, the rate that is charged for this is 8% in addition to the Bank of England base rate for business to business transactions, which currently sits at 0.1%. creating a total of 8.1%.
Charging interest and debt recovery
A business is also within its rights to claim debt recovery costs on said late payments. This will be a fixed sum. However, the amount that you are allowed to charge is completely reliant on the amount of debt up to a total of £100.