Helping your Clients Avoid Late Payment Fees
As tax season descends upon us, you'll see that a lot of people turn to accountants for advice. The main concern for most accountants is getting their clients their money as quickly as possible, but many overlook an easy solution — avoiding late payment fees altogether. Read this post and find out how the best accountants help their client avoid late payment fees.
Summary1. What is a Typical Late Payment Fee?2. A Combination of COVID-19 and Economic Upheaval has Created a Tough Environment for Many Small Businesses3. Getting Your Client's Involved With the Digital Accounting Transition4. Making Sure your Clients Have a Reliable, Secure Payment Process5. FAQ
What is a Typical Late Payment Fee?
In the UK, late payment fees are regulated by the Late Payment of Commercial Debts (Interest) Act 1998, that all businesses, including public sector organisations, to claim interest from any other business or organisation, including small businesses.
late invoices payment
Payment terms in the UK states that payment must be received in the first 30 days of sending the invoice or delivery of goods or services, whichever one is later. After this period and if no payment is made, late invoicing rules state that organizations have the right to charge their clients interest for late payment, depending on the late payment penalty clause as defined in the contract.
The "statutory interest" rate chargeable being the Bank of England base rate plus 8%.
Late income tax payment
As for income income Tax, HMRC late payment interest rate is set at 5.50% since 22 November 2022. This also applies to National Insurance contributions as well as Capital Gains Tax.
late corporation tax payment
Every company must pay corporation tax once every 12 months. Unlike income tax, corporation tax does not have a particular payment date. Instead, companies will submit their corporation tax according to their own accounting period. If payment is even a single day late, the company in question will suffer a penalty of £100. This penalty will steadily increase:
- One day late: £100
- Three months late: another £100
- Six months late: 10% of the remaining unpaid amount
- 12 months late: an additional 10% of the remaining amount
If left unchecked, the additional cost can pose a significant problem for an already struggling company, potentially pushing it past the point of no return.
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A Combination of COVID-19 and Economic Upheaval has Created a Tough Environment for Many Small Businesses
There's a lot of talk about the impact of the deadly influenza pandemic COVID-19 on businesses.
COVID-19 has irrevocably made matters worse. Medium-sized businesses and small enterprises or SMEs are the most vulnerable. According to the Federation of Small Businesses (FSB), 62% of small businesses experienced either an increase in late payments or had payments owed to them – for services actually rendered – completely frozen. Research from Barclays shows that three in five (58 per cent) SMEs across the UK are currently waiting on late payments from customers.
In addition to that, ICAEW Insights report UK businesses brace for late payments surge, published in June 2022, highlights the damaging impact of late payments on SMEs growth and development:
- 51% of surveyed businesses say that late payments are inhibiting their growths.
- 57% say stopping them meeting wage demands.
- 60% say it is preventing them from paying their own suppliers on time.
SMEs often lack resources to deal with payment delays from customers or suppliers because they don't have dedicated accounting staff. This makes it harder for them to deal with the impact of COVID-19 on their cash flow. This means late payment fees can take a big hit on a business's cash flow and bottom line.
While this will be helpful for clients, it still isn't enough to fully solve the problems that come with late payments.
Getting Your Client's Involved With the Digital Accounting Transition
As the digital accounting transition continues, the accounting profession is faced with helping clients understand the new technology and how it will impact them.
This is a good time to remind you that your clients don't have to be tech-savvy to use your firm's new digital offering. The best way to keep your clients involved in the transition is by explaining how it will benefit them. If they understand why a cloud-based accounting system makes sense for their business, they'll be more likely to take advantage of it themselves.
The good news is that it's not a major struggle for most businesses — most of your clients are already using digital solutions like QuickBooks Online or Xero, so the transition to these platforms is simple. Show them how these systems can help them save time and money by automating their accounting processes and making it easier for them to access their financial data, set up automatic invoice payments and get a clear view on their cash flows and payment schedules.
This way your clients will be less likely to fall behind on tax payments or get hit with late fees from their bank or credit card provider.
Making Sure your Clients Have a Reliable, Secure Payment Process
The accounts payable process is often one of the most overlooked areas in small businesses. Clients aren't always aware of the potential late payment fees they can incur, and they're not always careful about paying on time.
As an accountant, you can help your clients avoid these fees by reminding them when their invoices are due and making sure they have a reliable, secure accounts payable process in place. This includes:
- Built-in software integrations and exports
- Validation workflows (multiple approvers, validation in sequence, etc.)
- Shareable approval processes
- Automatic collection and bulk import of invoices
- Automation rules
- Scheduling of payments on due date (with deferred debit)
- Multiple payment options
- Import of invoices by OCR scan (optical character recognition)
Accounting Automation: Why it is Useful
In this article we'll talk about the three levels of accounting automation, how they impact your business, and how they can save you time and money.Read full article
What is the highest late fee allowed by law?
The interest allowed by law to charge, aka the statutory interest, is set at 8% above the Bank of England's base lending rate.