How to use Late Payment Legislation as Leverage
A survey, carried out by the FSB (Federation of Small Businesses), revealed that ‘only 1 in 10 FSB members have charged interest on overdue payments because of their fear of losing business’.*
To everyone at CMG UK this statistic is worrying, in large part due to our knowledge of the simple measures that can be taken to maintain a positive working relationship with your customers whilst collecting late payments.
CMG UK’s Managing Director Jenny Esau states, ‘SMEs need to have a credit management strategy in place that would drastically reduce late payment and protect profit from bad debt, all the while keeping your customers happy with the service you provide.’ It is this strategy that CMG UK specialises in; invoice collection should be a delicate balance of friendly customer service and a firm stance on collecting invoices.
Using interest and compensation as leverage is an effective tactic in collections; state to your customer that if they do not pay by a specified date you will have no other option that to add the extra fees to their outstanding balance. Late Payment Legislation states that, by law, creditors can charge statutory interest, which is 8% above the current Bank of England. Be aware that interest and compensation is due from the first day an invoice is beyond agreed payment terms
If, however, you state within your terms and conditions or contract that you will be charging an interest rate that is lower than Late Payment interest, you must stick to you contractual interest rate; this also applies to payment terms, if for example your terms and conditions state 60 days you must wait 60 days before charging interest. If you have no payment terms regarding interest on late payment you can certainly use Late Payment Legislation which state payment is due 30 days from supply of goods of service or date of invoice.
It may be that merely the threat of lawfully adding interest to their debts will encourage your customers to pay quickly; you may also find that stating your entitlement to add interest, but offering your customer the chance to pay within a certain space of time without said interest, will convey that you care about your business relationship. However, if you still haven’t received payment at this point don’t be afraid to add interest onto their debt, remember that the law is on your side in this instance.
Sources
*FSB
