Late Payment Interest

Late Payment Interest

Late payment interest and compensation can be used to improve your cash flow.

Earlier this year, the UK introduced new legislation to help businesses get paid quicker and improve cash flow. There was already legislation put into place in 2002 but the updated legislation added the following points:

  • Payment terms to be capped at 60 days for purchases made by businesses.
  • Payment terms to be capped at 30 days for purchases made by the public sector.
  • Payment terms any longer than the above, are subject to a test of reasonableness and cannot be “grossly unfair”.

Businesses in Europe can charge late payment interest at a minimum of 8% above base and late payment compensation of not less than 40 Euros. Businesses in England were already entitled to do this under the 2002 legislation and Europe is catching up. The main change for English businesses is the shortening and standardisation of payment terms.

Late Payment Interest Is 8% Above Base

Late payment interest at 8% above base is available to businesses. They can also charge late payment compensation. The legislation giving this power was introduced back in 2002. However, it isn’t widely known to businesses or applied.

All the member states of the EU must apply the terms so there will be greater consistency for businesses dealing with one another within the EU.

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