I am having trouble with companies not adhering to the 30-day payment terms. Some are not paying after three months even with constant phone calls. Is there anything I can do to make sure they pay on time? For example, penalties for late payment.
The Better Payment Practice Campaign website contains some useful information on credit management and getting bills paid on time. The site includes reference to the Late Payment of Commercial Debt (Interest) Act 1998, which gives businesses an entitlement to charge interest on overdue invoices. For contracts dated on or after 7 August 2002, the late payment interest rate is 8 per cent plus the reference rate. The current reference rate for the period 1 January 2010 to 30 June 2010 is 0.5 per cent. So the rate of interest chargeable on overdue debts is 8.5 per cent (8 per cent plus 0.5 per cent). The reference rate is recalculated every six months so you need to be aware when the invoice was raised, how long it is overdue (the Act assumes a normal payment period is 30 days) and the rate of interest chargeable for the period it is overdue. You will find the details in the section Calculate what you are owed in interest due to Late Payment.
In many cases simply threatening to charge interest is sufficient to get a dialogue between customer and supplier over the terms of payment. However, sometimes customers react badly to the threat of an interest charge so it is wise to tread carefully. It is best to raise the issue of your payment terms before accepting a customer’s order and to come to an agreement. Similarly, it is advisable to include the fact that you will charge interest on overdue debts in your terms and condition of trade.
See also: Late payment claims brought forward