You are advised to charge the minimum of the current base rate, and the maximum of thecurrent base rate plus the statutory rate. The base and statutory rates are guidelines, not hard and fast rules. If you have no sales contract, and the supplier has set no interest conditions, the statutory law automatically gives you the right to charge interest on amounts due after an initial 30 days . The number of days outstanding is the amount of days the payment is overdue . No VAT is charged or paid on overdue amount.
Interest is charged on gross balance outstanding.
In the above example we have given a common discount figure and a less than average number of days to take the discount option. The supplier and the customer must both benefit from a discount. The problem with this is that the customer in seeing the discounted invoice total after the allowed period is always tempted to send you the reduced payment. You need to make your customer aware that you will not accept such action. Discounts are viable when you need fast cash flow, or have sufficient working capital, or your own financing is inexpensive.