Useful Tips |
Is the Credit Crunch Affecting your Business?
• More so now than ever, it is important that you have a firm grip on your credit control (cash flow). Many businesses view credit control as an inconvenience and therefore do not take it seriously. They fumble their way through preferring to be on the telephone selling, or visiting customers, in fact anything except picking up the phone and asking their customers for payment!
Using Third Parties to undertake your debt collection
• If your invoice payment terms are 30 days and you have debts in your 60 days and older column, you should be looking to instruct a third party (such as ourselves) to collect these debts for you......
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How can we help you? |
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Useful Tips
Claim what you are entitled to! Along with providing credit control outsourcing services to manage cash flow within an organization, Credit Control Solutions also offers some useful information related to payment terms included in the legislation of the UK.
Late Payment Legislation
In November 1998, the UK Government introduced legislation to give businesses a statutory right to claim interest from other businesses for the late payment of commercial debt. The UK was one of the first countries in the EU to introduce late payment legislation to help promote a culture of prompt payment.
Amended late payment legislation came into force in the UK on 7 August 2002, which fulfilled the UK’s obligations under the EC Directive on late payment and brought additional benefits to businesses.
For commercial contracts dated before 7 August 2002
All small businesses, with 50 or fewer employees, can use the rights given to them by the Late Payment of Commercial Debts (Interest) Act 1998 to claim interest retrospectively. The table below provides a brief summary of how the legislation works on sales prior to 7 August 2002.
| The earliest date from which a commercial contract can create a claim for interest under the late payment legislation |
Who can use the legislation? |
| From 1 November 1998 |
Small businesses can claim statutory interest for late payment from large businesses and most of the public sector |
| From 1 November 2000 |
In addition to the above, small businesses can charge other small businesses statutory interest for late payment. |
For commercial contracts dated from 7 August 2002
From 7 August 2002, the Late Payment of Commercial Debts (Interest) Act 1998 was amended and supplemented to incorporate the features of European Directive 2000/35/EC on combating late payment in commercial transactions.
Under the revised legislation, all business owners and managers can claim reasonable debt recovery costs and can benefit from the simplification of the calculation of Statutory Interest. Additionally, small and medium sized enterprises can ask a representative body to challenge grossly unfair contract terms used by their customers that do not provide a substantial remedy for late payment of commercial debts.
The compensation entitlement varies in accordance with the size of the debt:
| Size of unpaid debt |
Sum to be paid to the creditor |
| Up to £999.99 |
£40.00 |
| £1,000.00 to £9,999.99 |
£70.00 |
| £10,000.00 or more |
£100.00 |
The revisions to the legislation also include the simplification of the calculation of statutory interest. A reference rate is now used to determine the late payment interest rate, which is fixed for a six-month period. The late payment interest rate that applies in the UK is the reference rate + eight per cent. The new fixed-reference periods are:
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The six month period |
| The Bank of England base rate on 31st December will be the reference rate for: |
1st January to 30th June |
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The Bank of England base rate on 30th June will be the reference rate for:
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1st July to 31st December |
Period Ref Rate Interest Rate (Ref rate plus 8%)
| Period |
Reference Rate |
Interest Rate (Reference rate plus 8%) |
| 1st January – 30th June 2007 |
5.00% |
13.00% |
| 1st July - 31st December 2006 |
4.50% |
12.50% |
| 1st January – 30th June 2006 |
4.50% |
12.50% |
| 1st July - 31st December 2005 |
4.75% |
12.75% |
| 1st January – 30th June 2005 |
4.75% |
12.75% |
| 1st July - 31st December 2004 |
4.50% |
12.50% |
| 1st January – 30th June 2004 |
3.75% |
11.75% |
| 1st July - 31st December 2003 |
3.75% |
11.75% |
| 1st January – 30th June 2003 |
4.00% |
12.00% |
| 7th August – 31st December 2002 |
4.00% |
12.00% |
If you would like a copy of our “Interest Calculator”, please contact us via our on-line query form and we will e-mail it to you. Alternatively, we have included details of how to calculate interest owed manually.
How to calculate Late Payment Interest Yourself
Debt x (multiplied)interest rate x (multiplied) number of days late / (divided) by 365 (if there is more than one invoice on the account, you will need to perform this calculation for each invoice outstanding)
The daily rate of Interest is calculated as follows:
Debt x (multiplied) interest rate / (divided) by 365 (if there is more than one invoice on the account, you will need to perform this calculation for each invoice outstanding and the add all of the daily rates together in order to ascertain the true daily rate of interest)
Example
:Let’s say you were owed £1,000.00 dating back to 1st January 2007 (for the purposes of this calculation today’s’ date is 31st January 2007)
Making reference to the “interest rate” table above, the statutory interest rate you will charge is 13%
£ 1,000 x 13% = £130 (the annual rate)
£ 130 ÷ 365 = 35.62p (the daily rate)
35.62 pence x 30 days = £10.68 (the interest owed to date)
go back
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