Crack down on bad debt

Late payment is the scourge of many small businesses, a hindrance that can put paid to efficient cash flow and pressurise relationships with suppliers.


Late payment is the scourge of many small businesses, a hindrance that can put paid to efficient cash flow and pressurise relationships with suppliers.

Late payment is the scourge of many small businesses, a hindrance that can put paid to efficient cash flow and pressurise relationships with suppliers. With talk of a double dip recession still being bandied around, the last thing you want to be worrying about is the possibility of that troublesome invoice being delayed any longer.

Worryingly, research suggests that the fear of losing business is stopping many SMEs from chasing bad debt, with 74 per cent of small businesses stating that they are likely to accept late payment excuses. If firms knew about the alternative to rolling over, and I imagine many don’t, they might be offered some assurance. Compensation can be claimed for any invoice that is not paid within the credit period, amounting to £40 for debts of under £1,000, £70 for debts between £1,000 and £10,000, and £100 if the amount owed is £10,000 or more.

If these numbers sound paltry to you, you can claim more in the form of late payment interest, which is 8 per cent above the Bank of England base rate. Technically, you don’t need to warn customers you are doing so, but it is good practice to update all documents on which terms and conditions appear and circulate the revised terms and conditions to them.

According to Annika Bosanquet, founder and CEO of Wrapology, a small luxury packaging business, one of the biggest contributing factors to late payments is creditors themselves not stating their bank sort code and account number on invoices. ‘Invoices that are sent through without these details can expect to be paid late as the subcontracted book-keeper who may only come in once a week to pay bills will always pay the easiest invoices first,’ she says.

Sandi Goddard, managing director of branding consultants Goddard Delaney, normally works through a process to deal with late payment. ‘Two late payment reminder letters coupled with phone calls, then either we agree a payment schedule or I send out a solicitor’s letter. Negotiation has always proved most successful, and of course you keep the client. However if they won’t pay then legal action works!’ she says.

Even if you don’t feel ready to take your clients to court, you can at least get to the bottom of those excuses. If the director who signs the cheques is on holiday, find out what provisions are being made in his absence. If the computer is down, they should be able to send a manual cheque if it is a frequent problem. The cheque is in the post? Ask for postage details. And if they are waiting for funds from a large customer and can only pay you when the funds are received, ask the name and address of their debtor and the expected time of payment – the company should be able to arrange some form of credit with the bank on the security of the debt.

There is always more small firms can be doing to make sure they aren’t viewed as a pushover on late bills – there is no need to be a victim any longer.

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