[Blacky]

Hi,

What are the legalities regarding charging interest on a outstanding debt owed to you by a customer. I am planning on profiteering from bad debts in a big way.

I have run it passed my accountant and he said it is ok as long as the debt is late and you have given good notice regarding the interest you will be charging for late payment and a attempt has been made to recover original amount.

I want to charge 8750%apr on value of work below £200. So for example £200 is owed to you by customer. You send invoice on a 30 day term. Customer doesn't pay after the 30th day. you send a reminder that interest will be added to existing amount on a daily basis at the rate of 8750%apr. So you could then legally charge £51.01 for every day that the debt is late by.

[Deep Cleaning Solutions]

ARE YOU FOR REAL .....

..... Where did you get 8750%apr from

You can't just pick an APR out of the sky and charge it.

First of all to charge interest you need to base all invoicing on 30 days, which it sounds like you are doing. I keep telling owners i know, what is the point of having 7 day terms ect as it is not backed by law, 30 days are.

You can find everything you need to know here - http://www.contractorcalculator.co.uk/contractor_guide_charging_interest_late_payments.aspx

You can, for each day outstanding charge interest, after 30 days i let them know that i will send a revised invoice each week with interest untill the invoice is cleared.

The interest you can charge legally is the reference rate of the Bank of England ( base rate ), plus 8%, this is APR i'm talking about, you need to break it down to a daily rate.

You can find out the current base here ( 0.5% at the moment ) - http://www.bankofengland.co.uk/Pages/home.aspx

This is how you work out the daily rate from the 8.5 APR you can charge -

For example -

£1,000 x 8.5% = £85.00 (the interest to be paid in a year APR)

£85.00 / 365 days (variable) = 23p (the daily interest rounded off)

Let's say they are 50 days overdue after your 30 days terms,
you can charge 23p x 50 days = £11.50 (the interest owed to date on 50 days)
You can find a late payment calculator here to work it out -  http://www.contractorcalculator.co.uk/late_payment_calculator.aspx

One more thing, you will need to make it clear on your invoice that you will charge interest after each outstanding day in your terms or they will just say you did not warn them.

Here is part of my terms on my invoice that makes it clear were i stand on interest charges -

PAYMENT TERMS/DETAILS –
30 Days Terms -
Invoice payment to be completed before 30 days
after the invoice date. We WILL use our legal right
to charge interest for every day outstanding after
the 30 days. The current rate is 8.5% APR variable. If
payment is not received by the 30 day terms, we
will send you a revised invoice with a breakdown of
the daily interest charge for every outstanding day
after the 30 days. A revised invoice with interest will
be sent to you every 7 days until payment is
cleared.

[creighton foyle]

i think there is a rate of 6% or 8% that a standard rate for late payments though i am not certain of these figures.

 your proposed charges may be allowed if stated in your t & c's but could be deemed excessive

 I should have read the previous post before hitting reply button

[Griffus]

All you need is in here: -

http://www.bis.gov.uk/files/file37581.pdf

[gwrightson]

I am guessing you are talking about commercial customers !!

what i have found to be the best policy over the last few years is to offer a 10% discount if paid upon completion, it has worked well so far with most taking up this offer, even to the point of one company paying me before the work has been done because of their payment system , simply give them a proformo invoice.

geoff

[Blacky]

ARE YOU FOR REAL .....

..... Where did you get 8750%apr from

You can't just pick an APR out of the sky and charge it.

First of all to charge interest you need to base all invoicing on 30 days, which it sounds like you are doing. I keep telling owners i know, what is the point of having 7 day terms ect as it is not backed by law, 30 days are.

You can find everything you need to know here - http://www.contractorcalculator.co.uk/contractor_guide_charging_interest_late_payments.aspx

You can, for each day outstanding charge interest, after 30 days i let them know that i will send a revised invoice each week with interest untill the invoice is cleared.

The interest you can charge legally is the reference rate of the Bank of England ( base rate ), plus 8%, this is APR i'm talking about, you need to break it down to a daily rate.

You can find out the current base here ( 0.5% at the moment ) - http://www.bankofengland.co.uk/Pages/home.aspx

This is how you work out the daily rate from the 8.5 APR you can charge -

For example -

£1,000 x 8.5% = £85.00 (the interest to be paid in a year APR)

£85.00 / 365 days (variable) = 23p (the daily interest rounded off)

Let's say they are 50 days overdue after your 30 days terms,
you can charge 23p x 50 days = £11.50 (the interest owed to date on 50 days)
You can find a late payment calculator here to work it out -  http://www.contractorcalculator.co.uk/late_payment_calculator.aspx

One more thing, you will need to make it clear on your invoice that you will charge interest after each outstanding day in your terms or they will just say you did not warn them.

Here is part of my terms on my invoice that makes it clear were i stand on interest charges -

PAYMENT TERMS/DETAILS –
30 Days Terms -
Invoice payment to be completed before 30 days
after the invoice date. We WILL use our legal right
to charge interest for every day outstanding after
the 30 days. The current rate is 8.5% APR variable. If
payment is not received by the 30 day terms, we
will send you a revised invoice with a breakdown of
the daily interest charge for every outstanding day
after the 30 days. A revised invoice with interest will
be sent to you every 7 days until payment is
cleared.

Yes I know the standard interest rates are the usual non profit making 6-8% apr, but would it be legal for me to charge 8750% as long as this was made clear on invoice and reminders.
I would like to get people into a position where a debt escalates £ 357.00 per week on a original invoice of £200.
I have a feeling that this would be deemed as extortion but could be wrong.

[John Kelly]

Wouldn't take long for word to get round, especially the business community. Might only take one person to get really peed off and it could have a big impact on your business.

[Deep Cleaning Solutions]

Your on a wind up, know one is this stupid.

[AshWhite]

Your on a wind up, know one is this stupid.

Irony.



But yes, it is a stupid idea.

[Chris Straker]

In the old days when people kept asking me to send invoice and they will send cheque etc etc ...... I use to build it in !! Quote £4.00 per metre on an average £3.60 job and then offer 10% reduction for payment on completion 

[pristineclean]

I suspect that this was a tongue in cheek post  but, on the off chance, the reason why no one can actually do that is because it's a principle of contract law that penalty clauses can't be enforced so I think that your accountant has misunderstood your question, tbh.

In the highly unlikely event that any company attempted to legally enforce a debt at a high rate of penalty interest as described, my guess is that the court would apply exemplary damages to the defendant and list the company as a vexatious litigant and that trading standards would prosecute the director(s) of the company concerned. Unlawful attempt at recovery would, of course, result in prosecution for fraud (Fraud Act 2006) and possible harassment (Protection from Harassment Act 1997).