Late Payment for Invoices

I’m interested to know how other businesses treat late payments for invoices, in terms of penalties.
Do you charge a % based on the time they take? Do you add on a fixed fee?

And on that note, how should they be treated in QuickFile - do you amend the existing invoice and re-issue it, or would you just raise a new invoice for the late fee?

You can try one Percent Ten Net 30 (1% 10 net 30) - This term is an incentive for the buyer to pay within ten days of the invoice date. If payment is made within ten days, the buyer may take a one percent discount. If the invoice is not paid in 10 days, the full amount is due within 30 days.

Say invoice value is 100 and customer pays within 10 days then you get 99 which is tagged against invoice and 1 is recorded as discount allowed

Great idea! Rather lose 1% and get money in on time!

What do others do? Anyone else have any defined methods? This is open to the whole forum - I’m interested in the various ways businesses try to deal with things like this

Also personally when I get client to sign engagement letter i mention in fee section that your annual fixed fee will be for example £1200 payable monthly through Direct Debit, if you decide not to then annual fee will be £1600. You can save £400 and ease of cash flow at same time.

I don’t do either on a regular basis for various reasons but the method Accountant mentions would work best and is what some of my suppliers use. It is very difficult to add a late fee onto an invoice and also get someone to pay it, and if they do then they generally aren’t happy about it but adding it to the invoice to start with and then removing it for early payments will work the same but will get less complaints and more happy customers. It also means customers will try and pay early so it’s a win win.

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For late payments of business to business transactions, after 30 days you can charge ‘statutory interest’ which is currently 8% plus the Bank of England base rate for business to business transactions, unless a different of interest is specified in a contract.

The payment is considered late after 30 days when either:

**- The customer gets the invoice.

  • You deliver the goods or provide the service (if this is later).**

Follow the steps below to charge interest on late payments:

Step 1: Add Default Warning to Invoices:

It’s good practice to add the following warning to your invoice:

“We reserve the right to charge interest on late paid invoices at the rate of 8% above bank base rates under the Late Payment of Commercial Debts (Interest) Act 1998.”

The warning can be added by selecting ‘Account Setting >> Invoice Customisation’ from the top navigation menu, followed by ‘Invoice Notes’ from the ‘Invoice Style’ area:

Step 2: Calculate the Interest Due:

See the example below:

  • Amount overdue = £1,000.00
  • Days overdue = 50 days
  • Interest rate (8% + 0.5%) = 8.5%
  • Annual statutory interest on (£1,000.00 x 0.085) = £85.00
  • Daily Interest (£85.00 / 365 = 0.23) = £0.23 per day

**Total interest due:
**After 50 days this would be (50 x 0.23) = £11.50.

Step 3: Send a New Invoice:

You will need to send a new invoice to add interest to the outstanding amount due, see the example below:

Ah, that’s interesting @Joe. Would I be right in assuming that as this is an act, the note added to invoices is simply a gentle reminder, but it could be enforced without?

@Lurch - completely agree. It’s always better to be ‘nice’ than ‘nasty’, and surely an incentive would work far better.

That’s correct @Parker1090 , it acts as a subtle reminder and you’re under no obligation to enforce, you can make that decision at the time.

Also there’s no reason why both methods cannot be applied and notes added to the invoice accordingly i.e. discount incentive to pay the invoice early and penalty interest deterrent to pay the invoice late.

Hi @Joe,

I’m a bit late to the party but … We’re currently experiencing our 1st major late payment since the regulations changed and I’m pushing my solicitors to add costs as well as interest -

i) Would you recommend issuing additional invoices for each extra cost / bill from our solicitors & the costs of my time incurred ? .

ii) With the interest charged at a daily amount the actual invoice amount changes on a daily basis - does this mean we should we i) keep amending the invoice ii) issue new ones iii) is there a sneaky trick within QuickFile to keep it up to date?

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I’m certainly looking to add on the compensation under s5A and the additional costs (such as court fees, solicitors fees etc etc).

In terms of invoicing, I’ve placed a statement that the amount increases daily (similar to the one @Joe put on his invoice example), but I too am interest to know how people deal with daily changing invoices and additional costs.

Anyone have any thoughts to add?

It’s not something that can be easily automated I’m afraid.

There is a possibility we could factor in a dynamic surcharge just before the checkout process, much like we do for card handling fees, although we’ve not really explored this area in great deal.

Hey @Glenn,

Thanks for the prompt reply as always!

Yeah, I think my ‘concern’ (it’s not the right word) was around how we keep the balance due current.
Likewise, with the suggestions made for prompt payments - is it possible to automate those discounts?

Prompt payment discounts or late payment interest is not something that can be automated at the moment I’m afraid. Although your interest in this feature has been noted.

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A useful site if you want more information on the legislation


You can also read more about Late Payments on MarketInvoice’s report. Click here to download