Small businesses still not keen to charge interest on overdue invoices

According to research published by Bacs this week, an incredible 83% of small businesses are not exercising their right to charge interest on late payment, despite ten year old legislation designed for that very purpose.

Bacs Payment Schemes Limited, the people behind Bacs Direct Credit and Direct Debit estimate that £18.6 billion is collective owed to the SME community by late payers.

The Late Payment of Commercial Debts (Interest) Act was introduced on 1st November 1998, providing smaller companies with the statutory right to charge interest on overdue invoices.

Initially launched on 1 November 1998, the Late Payment of Commercial Debts (Interest) Act was introduced to offer SMEs protection against late payments by providing them with the statutory right to charge interest on overdue invoices.

However, when questioned as part of Bacs’ annual business omnibus, just 15% of SMEs confirmed they had utilised their legal rights and charged interest on an overdue business payment. In the regions, Bacs figures revealed SMEs in the South East are least likely to charge late payers, with 92% stating they had never added interest to an overdue invoice. In contrast, SMEs in the South West are leading the offensive with a greater proportion of SMEs in the region (29%) confirming they had successfully charged interest.

Michael Chambers, MD of Bacs said:

“These figures are surprising considering the scale of late payment problems in Britain. Research conducted by Bacs at the end of 2007 showed a typical SME is now owed an average of £30,000 at any one time. Looking at this figure and other facts at hand, it’s high time businesses started to tackle this problem head on. SMEs shouldn’t just sit there and expect to be paid on time. They should encourage suppliers to pay their invoices automatically using Bacs Direct Credit, quote “Pay me Direct” on all their invoices and make a polite phone call in advance of invoice due dates to pre-empt payment. If, after all these steps have been followed, companies still fail to meet agreed payment conditions then SMEs should take advantage of the full legal rights they have been given and start charging interest on overdue payments.”

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