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Late payment interest rates

Discussion in 'General Business Forum:' started by ricklecoat, Jul 14, 2009.

  1. ricklecoat

    ricklecoat Junior Member

    Under the Late Payment of Commercial Debts Act we are entitled to charge interest on over due invoices. The standard in America seems to be 1.5% per month (18% annually). In the UK the rules AFAIK stipulate Bank of England Base rate + 8%, which currently means 8.5%. As I understand it this rate is the annual rate.

    That's quite a difference with the USA and I wonder if I'm misunderstanding the rules. Anyone else have any clarification they ca add?
  2. Greg

    Greg Active Member

    Hi Rick,

    Fortunately I've never needed to charge interest to overdue invoices, although I'm sure that time will come. I don't know about the comparison between the UK & USA, is your client based in the USA, or was you just curious about that difference?

    I found this link that may be of some help with regards to UK rates - Late payment legislation and the BPPG Interest calculator.

    It gives details about the reference rate + 8% for dates since 2002 when the act was amended. It also gives details about claiming reasonable debt recovery costs as a one-off charge in addition to the interest, this may be useful if you was unaware about that (as I was).

  3. Barry

    Barry Junior Member

    The 8.5% annually is correct and there is a big difference to the states.

    Greg's post is relevant though as in addition to late payment interest you can also apply a late payment fee based on the tiers above. It does work wonders for smaller debts as people can see you are serious and it's 100% enforceable.

    Of course there will always be the debate about applying these and how it affects the relationship with the customer but if they're not paying you then how much future is there in it anyway. In my opinion more people need to use this legislation as it would maybe help people pay quicker and get things moving again even just a little :)
  4. Renniks

    Renniks Senior Member

    So anything under £421 late payment and with the initial charge the uk would get more through the initial charge. (aswell as the added bonus of getting £40 straight up)

    Anything over £421 and you better hope you are American (or your client is? which is it?)
  5. ricklecoat

    ricklecoat Junior Member

    Thanks for the responses everyone. In answer to the question, no I'm not thinking about a specific client, either UK or US. The initial post was prompted by the fact that I'm drafting my standard terms and it has involved pulling in a load of sample contracts from other designers to see how they did things. Many of those were American, and so I was struck by the difference in the late payment penalty. (I've had the UK late payment legal line on my invoices for 10 years).

    The one-off debt recovery fee was new to me though; thanks for that Greg. I'm finding that over the last year and a bit the number of people trying to welch on payment is going up -- a direct result of the recession. Generally, I've found that little start up companies for whom I've created identities have a) been unused to commissioning/dealing with a designer and so have taken absolutely ages to bring the project to completion (eg. 3 months to come back with changes) so a 2 week project can stretch to a year, and b) by the time the project is thus completed, they've looked at the economy and decided not to continue with the startup after all... and figure that if they just go off the radar, they won't have to pay for all that design work that they inconveniently commissioned back when things looked rosier.

    Hence me whipping my terms/contract into shape. Oy vey.
  6. solomon

    solomon Junior Member

    I'm glad to have stumbled across this thread, my company are having similar problems too and I was wondering if any of you could shed light on the matter.​

    My company, who are UK based, are currently having a problem with a US company regarding a late payment. In line with UK legal practice, after a month of having not received payment we sent them a second invoice with an 8% interest charge added. The US company in question have subsequently contested the amount and claim that the interest on late payment that we have charged is too high. As I understand, it is standard practice in the UK to charge 8.5% at present, a fixed 8% rate on top of the existing bank of England interest rate which is 0.5%.​

    As far as I'm aware, after researching the US government website and various business related departments, the US don't have a federal law similar to ours which established a clear guideline for late payments interest. I'm intrigued, however, by ricklecoats comment above that suggests that the American practice is to charge 1.5% interest per month on late payments, indeed far lower than our rate in the UK. Can anybody confirm whether or not this is standard practice across the Atlantic? After finding no federal law relating to late payments I then wondered if rules relating to this were state specific, but have also found no evidence of this.​

    Any information you guys could give me as to the general trend or practice with regards to late payments in the US would be much appreciated. Also, If any of you have had experience in collecting late payment from US firms from the UK then I'd be happy to hear from you too.​

    Many thanks


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