How Is Late Payment Interest Calculated?
How Much Can I Charge on Late Payments?
How Is Late Payment Interest Calculated?
Adding interest as a consequence for those who choose to delay on payments is a common method employed by credit control teams in most businesses.
Under normal circumstances, it is always best-practice to have payment terms outlined before any agreement is signed, this way both parties are aware of what needs to happen and when.
Unfortunately, despite the best-prepared documentation and service provided, some clients will still delay their payments beyond the agreed terms.
In this case, it is common to add late payment charges to an invoice or contract.
So, how is late payment interest calculated?
The standard interest and compensation rates are detailed in the Late Payment of Commercial Debts (Interest) Act of 1998.
As per this act, businesses in the UK have the right to charge interest on unpaid and overdue invoices in order to aid in the cost of debt recovery.
Even with this proactive measure in place, many late payers will persist and refuse to process the invoice no matter what.
At this point, it is best to reach out to a debt collection agency to help recover the unpaid invoice.
What Happens When a Client Ignores Interest on an Overdue Invoice?
Unfortunately, despite interest being added to an invoice as a consequence for late payments, clients who are dead-set on not paying will simply ignore these extra charges.
For the person in the position of managing the invoice, this can be a huge headache.
If your client continues to ignore interest on overdue invoices, you should seek to contact a debt collection agency.
Whilst this may seem like a drastic measure at this early stage, it does actually save a lot of time and wasted resources compared to attempting to independently collect the debt yourself.
When putting it into perspective, many business owners and accounts teams generally follow a similar process when it comes to collecting a debt.
This process can take a long time, and crucially takes their attention away from other pressing matters, such as growing the business or helping existing or new clients.
How Can a Debt Collection Agency Help My Business with an Overdue Invoice?
If you have one, or many, unpaid invoices a professional debt collection agency can help.
In the vast majority of business and commercial situations, there is some form or documentation which can assist in the debt collection process.
For example, this could be the invoice itself, a contract, or some sort of written agreement.
Having this documentation to hand will aid in the recovery process, as the terms of the agreement are outlined clearly.
Using this information, as well as other correspondence, a debt collection agency will usually be able to work towards collecting the debt on your behalf.
The Benefits of Instructing a Debt Collection Agency To Recover an Unpaid Invoice
As mentioned above, this is the most effective method of recovering your unpaid money, and choosing the right debt collection agency to do so will also provide many other benefits.
For example, outsourcing the collection of a debt to a professional agency will mean that your recovery will be handled in the most professional manner possible, by a third-party.
Quite often, when collecting the debt independently, conversations can sadly become heated and confrontational. With an agency handling the recovery, every step is taken to ensure that all communications are dealt with in the most professional, matter-of-fact manner.
This leaves business relationships uncompromised, so that future opportunities can be undertaken amicably.
This collection process is done in a lawful, professional manner, and is the most cost-effective option compared to the cost of recovering the debt independently.
Federal Management are the UK’s leading commercial debt collection agency and are specialists in recovering B2B debts, such as an unpaid invoice.
Our debt collection experts provide a fully transparent service from the beginning of the process, usually providing a free analysis of the recovery.
This will take the situation and circumstances into account, and provide a free assessment of the eligibility of the recovery itself.
Whilst this may initially sound disappointing in some cases where it is impossible for the debt to be recovered by anyone, it actually results in time and money saved. Many disreputable agencies will knowingly take on a debt which is in fact unrecoverable, locking their clients into lifetime memberships only to provide no return on investment.