The issue of late payments continues to be a problem for many small businesses. Confederation of British Industry (CBI) statistics give £31,000 as the average amount that UK businesses are owed and put the total of outstanding late payments at over £30 billion. According to Matthew Fell, the CBI’s Director for Competitive Markets, ‘Many firms are being held back from growing and creating jobs because they are owed thousands of pounds.’ This, he says, is unacceptable, and he advocates measures to ‘create a culture of prompt payment in all businesses.’
Suggestions for Promoting the Culture
The CBI has volunteered a number of suggestions in response to the government’s late payment consultation, but warns that introducing heavy-handed regulations could be counter-productive, discouraging dealings with UK firms and giving overseas competition an advantage. They therefore recommend voluntary policies and procedures to encourage the culture of prompt payment.
These include setting a target maximum payment term which could depend on the complexities of contracts. Another recommendation is to make policies more transparent so that supplier payment arrangements can be seen on company websites. The organisation also believes that the term ‘grossly unfair’ in the 2013 Late Payment Regulations is too vague and should be clarified.
Taking Legal Action
Many small businesses are fearful of charging the interest they are legally entitled to on late payments. They tell their bookkeepers that they fear that customers will take their business elsewhere if they do so.
Others whose efforts at chasing payments have got nowhere are considering whether to take their debtors to court. But what are the financial implications of this? What would it cost and what could be recovered from the debtor?
One firm of debt recovery solicitors have made it easy to work it all out. Lovetts have put a claim calculator on their website for anyone to use. Based on specified fixed fees, it gives a breakdown of amounts that can be claimed and a minimum figure of what would be recoverable.
For example, on a debt of £5,000 that is 92 days overdue, the statutory interest would be £107.12, with a compensation amount of £70. When the fixed fee recoverable outgoing of £102 is included, this brings the minimum claim amount to £5279.12.
Outsourced bookkeepers know that other legal costs could also be recovered making the action worth taking, provided there is a cast iron case that the debt is owed and the payment terms have clearly been breached. If you are worried about how to chase late payments, it’s worth discussing it with your bookkeepers as a first step.