July 31 2006.
A poll by the Better Payment Practice Group (BPPG) has found that half of UK firms surveyed do not know how to calculate late payment interest. The BPPG urges all businesses that are unsure of the calculation to use the free interest rate calculator on its website, www.payontime.co.uk, in order to make full use of this important deterrent to late payment.
The poll, which was held on the BPPG's website, www.payontime.co.uk, asked businesses if they knew how to calculate late payment interest. Of the 419 respondents, 49% admitted that they did not. The survey also split respondents by number of staff and found that 61% of micro companies, with 0-9 employees, did not understand how to determine the amount of interest due from late payers, compared with around 33% of small (10-49 employees), medium (50-249 employees) and large (over 250 employees) companies. The level of understanding has improved from two years ago, however, when a similar survey by the BPPG found that almost 75% of businesses were unsure of how to calculate late payment interest.
Richard Wilson, member of the BPPG and Head of Business Policy at the Institute of Directors, commented: "We believe that the threat of charging interest is potentially an effective deterrent against late payment and encourage all businesses to understand their rights under the late payment legislation and include their entitlement to claim interest and compensation in their terms of trade.
"While we are pleased that knowledge of how to calculate late payment interest has improved over the last two years, the number of firms, particularly micro businesses, who do not know how to determine the interest owed to them is still too high. Clearly the Government needs to do much more to publicise its own legislation. Along with the interest rate calculator, the BPPG also offers a free guide to the late payment legislation to help businesses understand their statutory rights. This can be downloaded from www.payontime.co.uk."
Under the UK's late payment legislation, businesses are entitled to charge interest on overdue commercial debts. For contracts dated on or after 7th August 2002, the late payment interest rate is set twice a year by adding 8% to the reference rate, which is the Bank of England base rate on 30th June and 31st December. This interest rate is applicable for payments which become overdue in the ensuing six-month periods, i.e. between 1st July and 31st December and 1st January and 30th June respectively. The annual late payment interest rate for the current period is 12.5% and interest accrues daily while the debt remains outstanding.