Set up and apply late payment credit charges

Late Payment Legislation

• You can charge late payers interest on any overdue amount after a set period of time. This provides an incentive for businesses to pay promptly and helps your cash flow. You can find out more at:
  
  • Late Payment of Commercial Debts (Interest) Act 1998
  • The Late Payment of Commercial Debts Regulations 2013

• This doesn't place any more legal obligation on debtors to pay on time, but does provide you with a means of compensation for the inconvenience of a late payment.

• Interest charged is set at a maximum of 8% above the Bank of England base rate, and applies to the entire overdue invoice amount including VAT. Interest is simple rather than compound which means you can't charge interest on interest.
• In addition to informing your customers verbally of the right to charge interest as part of standard payment terms, you should state the following text clearly on all written communications, credit application forms, order confirmations, invoices and contracts:
  
  'We understand and will exercise our statutory right to interest under the Late Payment of Commercial Debts (Interest) Act 1998 if we are not paid according to agreed credit terms.'
  
  

  For help with adding text to your Sage 50 Accounts layouts, visit the Reporting in Sage 50 Accounts area of the Sage Help Centre.

NOTE: Sage Accounts doesn't automatically calculate the fixed sum compensation entitlement also detailed in the Late Payment of Commercial Debts (Interest) Act.

Check you have a Credit Charges control account

This process assumes that you already have a Credit Charges nominal code within the Sales section of your chart of accounts.

1. Click Settings then click Control Accounts.
2. Check that there's a nominal code listed for Credit Charges, the default code is 4400.
3. If no code appears, click the Credit Charges drop-down then click the required nominal code.
4. Click OK.

Enter the finance rates

1. Click Settings, click Configuration then click Terms.
2. To enter a new finance rate click Add and complete the Set Finance Charge Rate window as follows:
   

   Date Applying	Enter the date from which you want the new finance rate to apply. The rate is applied on a daily basis using the rate entered for that date. If the rate changes in the period the invoice is overdue then the wizard applies the different daily rates accordingly.
   Base Rate %	Enter the Bank of England base rate.
   Additional %	Enter the percentage above the Bank of England base rate to be charged, up to a maximum of 8%.

3. Click OK, click Apply, then click Close.
4. If prompted to save the changes for use in another data set, click Yes or No as required.

Flag the customer record and enter the payment terms

 NOTE: After changing credit charge settings, you must delete and repost any outstanding invoices for the new settings to take effect. 

1. Click Customers, click the customer that you want to amend, then click New/edit.
2. Click Credit Control and complete the Credit Control window as follows:
   

   Payment Due	Enter the number of days an account can be overdue before credit charges are applied.
   Can Charge Credit	Select this check box.

   If you set the Payment Due box to 0 days, Sage 50 Accounts uses 30 days.
   
   
3. Click Save, then click Close.
   
   

Credit Charges wizard

If your customer doesn't pay you on time, when you're ready to apply charges to their account you can use the Credit charges option to do this.

1. Click Customers then click Credit charges.
2. If required, to take a backup click Backup and follow the on-screen prompts.
3. To proceed with the wizard click Next.
4. Enter the Date for the credit charges posting, the Department, and if required, select the Include Disputed Items check box then click Next.
   
   The credit charges apply up to, but not inclusive of this date.
   
   
5. Select the relevant customers to charge then click Next.
   
   If this window is blank, it's because there are no outstanding, overdue transactions on the selected accounts.
   
   
6. Select the relevant transactions to charge then click Next.
7. Click Post then click Exit.

If an invoice is picked up for credit charges, but is still outstanding the next time the wizard is run, the wizard charges for the additional outstanding period.

Late payment charge calculation

The late payment charge is calculated as follows:

Send a statement

To show your customer the late charges applied, send your customer a statement.