Late Payments

Late payers are never good for business. They can cause huge problems for companies cash flow and for the self employed it can make the difference between you being able to pay your mortgage or not.

Late payment legislation for business to business transactions was updated in March 2013 to implement a European Directive to simplify the procedures across the EU. This legislation is not just for Limited companies, it is for all businesses so here’s what you can do.

Payment Terms

It is always best practice to agree payment terms with a client before commencing work, however this is not always possible and now you don’t have to.

Unless agreed otherwise a payment is late if not paid after 60 days for business to business or 30 days for business to public sector transactions.

Charging Interest on Late Payments

You can charge statutory interest at 8% above the Bank of England base rate. If the debt becomes late in the 1st 6 months of the year you use the base rate issued on 31st December, the 2nd 6 months of the year use the base rate issued at 30th June. It’s currently 0.5% so you can charge 8.5%.

Calculating Late Payment Interest

Use the following formula:

Debt x Interest rate % x number of days late ÷ 365 =

Additional Charges

Fixed fees can be added to the debt

  •         £40 for debts up to £999.99
  •         £70 for debts from £1000 to £9999.99
  •         £100 for debts of £10k and above

If your costs for chasing your payment are more than the fixed fees above, you can claim the extra expense as ‘reasonable costs’ so you should never be out of pocket.Paid-stamp

References & more detailed guidance can be found:

  • Directive 2011/7/EU on combating late payment in commercial transactions.
  • Dept for Business Innovation and Skills.
  • Base Rates found on Bank of England Website.


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