Interest rate rise could help SMEs tackle late payment
When interest rates change there’s always talk of the winners and losers of the situation. Savers benefit from an increase whilst borrowers are worse off.
But an increase also brings an advantage for businesses who have been struggling with late paying customers, one which might not have been immediately obvious.
Will you benefit?
It all relates to a piece of legislation that many businesses are aware of, but don’t always apply. It’s called the Late Payment of Commercial Debts (Interest) Act, which gives businesses the right to charge their customers compensation and statutory interest on any overdue invoices to help cover debt collection costs.
An interest charge of 8% plus the Bank of England Base Rate applies from the day the debt becomes overdue, whilst you are also eligible to claim debt collection costs of at least £40, depending on the invoice’s value.
Therefore, any interest rate rise gives SMEs extra leverage when chasing late payments – and debtors more reason to pay their overdue bills faster.
At the start of February the Bank of England increased interest rates to 0.5%.
The increase is the second rise in seven weeks, after the interest rate edged up from 0.1% to 0.25% in December.
It is the first time the Bank has hiked interest rates at two successive meetings since 2004.
Whilst this is not a huge increase, at a time where SMEs are really feeling the strain of late payment, it could be a helping hand in chasing overdue invoices.
How much could you charge?
To calculate how much late payment interest you are eligible to charge on overdue invoices simply use our tool below.
Please note: If you’re experiencing problems please click here to use the tool.
Will interest rates keep going up?
According to the Bank of England, further increases may be coming.
In its latest meeting the Bank’s monetary policy committee was split on the size of the interest rate increase. Four of its nine members wanted a 0.5% hike, which would have taken rates to 0.75%.
Governor Andrew Bailey told a news conference: “We have not raised rates today because the economy is roaring away.
“An increase in Bank rate is necessary because it is unlikely that inflation will return to target without it.”
He also signalled that there could be more increases in coming months.
This is echoed in a post on the Bank of England’s website which states: “We may need to increase interest rates further over the coming months. But that all depends on what happens in the economy – to the prices of energy and other imports, to wages, and to the level of spending.”
This would give SMEs even further power in their bid to persuade customers to pay on time.
What do you think? Will the interest rate rise help you in the fight against late payment? Or is it unlikely to make a difference? Let us know in the comments below.