Charging Interest on Late Payments
In Europe since 2002 you are legally entitled to charge interest on late payments on commercial transactions. You are allowed to charge 8% above the European Central Bank base rate from the day the invoice becomes overdue.
I would advise selective use of this facility e.g. for small customers, for consistent late payers or for accounts you place for collection with a legal firm or a debt collection agency.
The main reason for not adding on this charge is the potential damage it could do to the relationship, if you have placed the account for collection, the relationship has already been damaged, so, I can see no reason why you wouldn't!
From an operational point of view, I think it is best to calculate the interest rates and charges that are due on the account. Set up a new product code called "Interest and Charges" and send them an invoice for the amount. At worst this will get a reaction and restart your conversation with them.
You can decide yourself on a strategy e.g. if they pay the original amount in 7 days you may agree to waive the interest and charges or you may decide that when interest has been added they now have to pay the full amount. It is up to you.
So How do I calculate it?
You could check back through the ECB records and find the rate that was applicable on the first overdue date of the invoice and do the sums yourself or you could order your copy of my "Euro Late Payment Calculator" for only €7.62.
If you choose that option click on the "Order Now" button below and I will send you a link to the spreadsheet and your password to access it.
Is it easy to use?
You can see below, all you have to enter is the invoice date, your terms in days and the amount due. The calculator will find the correct interest rate, the correct administration charge and give you the total.If you want to enter the Customer Name - you can print off the page as back up to your interest invoice.
The calculator is just for your own use, so please keep it to yourself and if others would benefit from having it then ask them to buy their own copy! At this small price it is worth it and will also ensure they get updates when the rates change in the future. Thank you.