According to the law, you have a right to charge interest per the Bank of England’s base rate and add 8%.
For example, currently, the base rate for the Bank of England is 0.1%
This means that you would charge 8.1%
The rate of calculating interest is fixed over six months.
The base rate set on 31st December was used to calculate debts between 1st January and 30th June.
Calculating the interest due to you is a straightforward process, and here’s the step-by-step process;
Start by multiplying the total amount you are owed by the rate of interest you will charge. In this case, 8.1%.
For example, if you are owed £1,000, then the interest would be £1,000 X 8.1% = £81
Next, calculate the daily interest by dividing this annual interest by the number of days 365
£81 /365 = 0.22
You would then work out the total amount due by multiplying the daily interest with the total number of days late.
For example, if the invoice has been late for 30 days, then the total interest would be;
0.22 X 30 = £6.6
Therefore, the new invoice amount would be £1006.6.
Any part payment made by the client will go towards reducing the amount owed.
For example, if the client paid £1000 for the new bill, they would now owe £6.6. This is because the daily interest would now be accrued in addition to this amount.
The amount outstanding will also change per day.
Each day, the amount keeps increasing by the interest amount, and it is good to be practical with the client about this to settle their debt.