FreeAgent: Just 51% of invoices paid on time
Research showing that almost 50% of invoices are not paid on time has strengthened calls for the government to tackle the late payment crisis affecting freelancers and other microbusinesses.
Conducted by cloud accountancy software company FreeAgent, the research analysed 50,000 businesses and hundreds of thousands of invoices from the last year.
Last year, the government pledged to tackle the late payment of invoices. In part this was to be done through a Small Business Commissioner, who would act as a champion for Britain’s busy small businesses. But this post has yet to be filled.
Separate figures released by Zurich earlier this year showed that Britain’s SME’s are owed a total of £44.6bn in late payments and one in five firms is owed more than £25,000.
The Federation of Small Businesses meanwhile, estimates that the average entrepreneur spends about 1.2 days per month chasing late payments.
The FreeAgent analysis revealed that the late payment problem is more pronounced in certain areas of the country.
Sheffield came out bottom of the list with just 29% of invoices in the city paid within three days of the payment deadline.
Manchester was the least affected with 79% of microbusiness invoices paid on time. Manchester was closely followed by Leeds (76%), St Albans (67%), Coventry (61%) and Nottingham (60%).
Ed Molyneux, CEO and co-founder of FreeAgent, said: “Micro business owners need to get paid promptly to keep their cash flow healthy and most don’t have the luxury of being able to absorb a late – or non-payment in their accounts. We need to see a complete cultural shift when it comes to paying invoices, so that these types of smaller businesses are not put at risk.
“It’s certainly good news that the government recognises the late payment problem and is recruiting a small business commissioner to tackle the issue. However, this process has dragged on for a considerable amount of time and I fear that whoever is appointed will have limited power to actually punish companies who routinely pay late, aside from just naming and shaming them.”
Fighting late payers: The law
The law gives you the ability to claim interest and other payment costs if another business is late in paying you for goods or services.
If you haven’t agreed when money will be paid, the law states that the payment is late 30 days after the customer gets the invoice or you deliver the goods or provide the service (if this is later).
Longer payment periods can be agreed by businesses, but if it is longer than 60 days the government says “it must be fair to both businesses”.
You can charge interest on late payments at 8% plus the Bank of England base rate.
Therefore, if you were owed £1,000 and the base rate was 0.5%, then the annual statutory interest would be £85 (8.5%). You would then need to work out the daily interest and multiply this by how late the payment is.
If you decide to charge interest on a late payment then send another invoice.
Late payment costs
You can also charge a business a fixed sum for the cost of recovering late payments. This one off charge can be applied in addition to any interest payments.
The amount you can charge depends on the amount of debt.
For debts up to £999.99 you can charge a one off fee of £40.
For debts over £999.99 and under £9,999.99 you can charge a one off fee of £70.
For debts of £10,000 or more you can charge a one off fee of £100.