My Credit Controllers’ default approach is to add interest and compensation payments (including our success fee) to the debt to be collected from the outset unless instructed otherwise by the client. Ending up in court adds upfront costs with the risk you may not win these back. Most businesses just want their invoice settled quickly and with minimum fuss so they can move on. For example, debtors often claim that they never received the invoice or may have raised a query on the invoice that they feel wasn’t resolved.įinally, adding compensation charges could just delay your payment further or reinforce opposing positions. It’s not always clear-cut that the fault lies only with your debtor. You may have a long-term trading relationship with your customer and decide it’s better to maintain good relations for the future. Charging interest and compensation is optional, and may not always be the right choice. Just because you have the right to apply compensation charges and interest doesn’t mean that you always should. Should I Charge for Compensation on a Late Payment? This could include, for example, fees for a debt collection agency service so you can appoint professionals to spend their time chasing the overdue invoice at no cost to you. Second, you can claim compensation for “reasonable costs” associated with recovering the late payment that exceed the fixed sum. You choose your reference rate based on the six month period in which the invoice became due. The reference rate is set each six months for the following six months as the base rate on 31 December and 30 June. Simple (not compound) interest is calculated at the rate of 8% above a reference rate based on the Bank of England base rate. We also have a handy statutory interest calculator available here. If you're using our online debt collection service to collect an overdue invoice then you will be given the option to add interest and fees to the amount and the system will automatically calculate the amounts for each invoice. The statutory right to claim interest and compensation is not compulsory and it is for the supplier to decide whether or not to make use of the rights. This development opens up the opportunity to use a debt collection service to recover the debt and add the fee to the amount the debtor needs to pay you so if they pay the whole amount, you effectively get the service for free. As well as forcing the debtor to pay interest and the fixed fee, the supplier can also get back their "reasonable" recovery costs from the late payer. The fee was fixed depending on the size of the outstanding debt to be collected. In addition to charging interest, a late payment fee was introduced towards the costs of recovery of the debt. The original legislation applied to debts owed by large firms and the public sector, but in 2002 the right was extended to debts owed by small companies too. The UK has had late payment legislation since 1998 that created a statutory right for suppliers to charge interest on overdue invoices. Interest and Compensation on Late Payments Can I Claim Interest on an Overdue Invoice?
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