In the UK there is a statutory right under the Late Payment of Commercial debts (Interest) Act 1998 to charge debtors interest on late payment and also claim reasonable debt recovery costs. The right to exercise this statutory right does not apply if the terms and conditions of the business set out different debt recovery parameters. Unless the terms and conditions or sales invoice set a different credit term then every commercial invoiced is due after 30 days.

In the UK the interest rate a business can charge is fixed twice annually on 30 June and 31 December using the base rate as the reference rate and then is applicable for the following 6 months. A rate fixed on 31 December is applicable from 1 January to 30 June of the following year.

The interest rate to be charged would be the Bank of England base rate plus 8 per cent. If the base rate is 5 per cent on the reference date then the amount that can be charged would be 5 plus 8 equals 13 per cent.

In the UK there is a set schedule of reasonable debt recovery costs that can be charged to late paying customers. These costs are 40 pounds for debts under 1,000 pounds, 70 pounds for debts between 1,000 and 10,000 pounds and 100 pounds for debts over 10,000 pounds.

If the client chooses to ignore being charged extra for non payment then the next letter should advise the debtor the future orders will be placed on stop until the account is brought to order. Such action by the supplier may harm future sales but it is better to restrict the financial exposure to the sales already made than continue to extend credit where the prospect of never being paid may become a reality.

If payment has not been received by this stage then a serious situation has developed. The customer has not paid on time causing the business a reduction in cash flow. The debtor has also indicated by non payment action that increased costs through interest and penalties is preferable to paying and finally that they are prepared to risk not receiving further goods and services.

At this stage the supplying business has to consider legal action to recover the outstanding balance. The amount outstanding is at risk and legal debt recovery should be invoked to avoid the whole balance becoming a bad debt which may never be recovered with the consequential effect on both cash flow and net profit.

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