Late Payments Remain Problematic

Late payments are continuing to cause significant problems for SMEs, with larger and seemingly ‘well-heeled’ businesses being some of the worst culprits for delay.

In June, while it was probably lost to most amongst the deluge of government press releases regarding Brexit, the Small Business Minister unveiled a package of new powers to attempt to assist in tackling late payment culture.

Those powers include:

• Imposing fines on companies
• Imposing binding payment plans
• Holding company boards to account for their payment practices
• Provision of a fund to encourage better digitisation of invoicing, payment and credit control systems

The intention of all this is to bring larger businesses with poor payment practices into line and seek to prevent them from taking advantage of smaller suppliers who, generally, have lower negotiating power and greater funding restrictions.

That’s, undoubtedly, a positive move; the government should weigh in to hold larger businesses to account in such situations as the effect on cash flow, particularly for smaller businesses, can be debilitating and, in some cases, fatal. Whether it will have the desired effect, however, is debatable as culture change does not happen overnight.

In the meantime, there are tools at your disposal with which you can seek to encourage your debtors to pay on time and prevent them from improving their own cash flow at your expense.

If you do not have specific provisions governing payment default in your terms of business, the Late Payment of Commercial Debts (Interest) Act (as amended) is there to help by implying them into all commercial contracts.

The Act entitles you to claim additional interest (at 8% over the reference (typically base) rate) and charges to compensate you for the failure to pay on time (based on the value of the invoice and varying from £40 to £100). The Act also entitles you to claim your reasonable recovery costs in circumstances where they exceed the compensation element payable.

While there is understandable trepidation that utilising your statutory rights may risk your trading relationship, one of the consequences of payment apathy is that debtors will continue to push the boundaries of what you are prepared to tolerate. Building and maintaining a relationship as a business that proactively chases payment will likely place you at the front of the queue for the payment run.

Ultimately, the longer you leave dealing with a late payment, the closer it gets to becoming a ‘bad debt’; placing more strain on your debt book and customer relations as a consequence. Government initiatives in this area are to be welcomed but it is far more important to ensure that you are doing all you can to ensure that your invoicing and credit control procedures are robust; accurate invoices, payment reminders, overdue notices and, where appropriate, escalating matters to solicitors.

Instructing a solicitor does not and should not be seen as the nail in the coffin of the trading relationship. Settlement negotiations typically take place fairly promptly following receipt of demand in instances where the debtor has a genuine intention to pay.  

David Owen is an Associate Solicitor in Recoveries and Professional Liability at JCP Solicitors. The team is on hand for tailored legal support and advice. Please call David on 01792 525431 or email: david.owen@jcpsolicitors.co.uk.

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