Charging Interest to Late Paying Businesses

I have a number of clients who are really poor payers. This is causing me a significant problem with my cashflow, as sometimes I have to pay my supplier for the materials before I have received any payment for the work undertaken. Can I charge interest if my clients do not pay me?

1st July 2009

All businesses have a legal right to claim interest from late-paying business customers, but not individuals. The statutory right to interest applies to all contracts agreed after 7 August 2002 and gives you the right to charge interest at the Bank of England base rate plus 8%. The base rate for the current period to 31 December 2009 is 0.5%, so you can charge interest at 8.5%.

The statutory right to charge late-paying business customers interest applies to contracts which do not already include their own arrangements for 'substantial' interest. If there is no agreed credit period in your terms of business, the law sets a default period of 30 days. You can charge interest 30 days after you delivered the goods or provided the service, or 30 days after you notified the purchaser of the amount of the debt - whichever is the later.

Ideally, to notify the purchaser of the amount of the debt, you should send an invoice that includes details of the credit period but any other form of notification would do, including a phone call - though that might be difficult to prove if there is a dispute.

All organisations also have a right to claim reasonable debt-recovery costs. Creditors can claim an extra 40 for debts of up to 1,000, 70 for debts from 1,000 up to 10,000 and 100 for debts of 10,000 or more.

By Jo Nockels

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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