Half of all UK firms do not know how to calculate late payment interest, according to a new survey conducted by the Better Payment Practice Group (BPPG).
An online poll found that, out of 419 respondents, 49 per cent were unable to correctly calculate late payment interest, which businesses are entitled to charge if they find themselves suffering from unpaid debts.
The UK's late payment legislation allows businesses to charge interest at eight per cent above the Bank of England base rate for contracts dated on or after August 7th 2002. The late payment interest rate is set twice a year, on June 30th and December 31st and therefore currently stands at 12.5 per cent, with interest accruing daily until the debt has been paid in full.
However, 61 per cent of companies employing between nought and nine employees admitted that they did not know how the interest was calculated, while 33 per cent of small, medium and large companies also did not understand the calculation.
"We believe that the threat of charging interest is potentially an effective deterrent against late payment and encourage all businesses to understand their rights under the late payment legislation and include their entitlement to claim interest and compensation in their terms of trade," said Richard Wilson, BPPG member and head of business policy at the Institute of Directors.
The situation, although still not ideal, does seem to improving however, as nearly three quarters of businesses were unsure of how to calculate the higher rate of interest two years ago.
Mr Wilson continued: "While we are pleased that knowledge of how to calculate late payment interest has improved over the last two years, the number of firms, particularly micro businesses, who do not know how to determine the interest owed to them is still too high. Clearly the government needs to do much more to publicise its own legislation."
Companies who are suffering at the hands of late-paying customers could also benefit from invoice finance, in the form of factoring or invoice discounting. Invoice finance works by advancing you the money tied up in unpaid invoices so that you can budget more easily and have a better grasp of your cashflow.
In general, you will receive up to 90 per cent of the value of your invoices within 24 hours. The factor will then collect payment from your debtors and forward the remainder of the balance to you, minus a small fee.
The Simply Business website has a range of quotes from invoice finance providers which could help you to determine the best way for your company to avoid the problem of late payment.
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