Late payments

As we start a new year - hopefully an easier one than the last couple proved - I was thinking about the hurdles we have overcome, both as a country, and as a business. Covid and Brexit gave us all huge challenges which we are all working hard to overcome but there are still the everyday challenges which we all face such as the late payment of invoices.

According to the Federation of Small Businesses (FSB), “Late payment of invoices – often by bigger businesses to their smaller suppliers – leads to the shutdown of 50,000 businesses a year. Over the last three months more than half (54 per cent) of small firms have been the victim of late payments.

That is a shocking statistic and given the current economic situation, I suspect it will get worse!

It's not an easy one to tackle though. We have The Late Payment of Commercial Debts (Interest) Act 1998 which gives us the legal right to charge interest and compensation on late invoices. And it is a good start. But is it always the right or best way to tackle late payment? Do you worry that by using the Act, you will alienate your clients and maybe not get any repeat business? Is that a bad thing considering that a late payer is not necessarily a good client? Or do you take the view that late payers are not always bad clients, but you need to put your cashflow first? We all have to use our judgement and deal with each case as necessary but is there a better way? The current system still puts the onus of debt collection on the company owed money, not on the company who owes them money. Very often small businesses do not have the time, money or personnel needed to do these things. And if the invoices still aren't paid? What then? Court action. Again, the onus is on the business that is owed. The time and fees have to be found from somewhere and we are all busy running our businesses - do we have the time, money and expertise needed to start a court case? Do we know what paperwork is needed, what steps we should have followed, what processes we had to legally ensure were done in a timely fashion? Maybe. Maybe not.

The FSB is campaigning on this point. Their recent article on the subject states “There’s an easy win for the Government and small businesses here if ministers double down on blacklisting big business offenders from winning taxpayer-funded contracts; as well as making audit committees of big firms directly responsible for their company’s payment practices.”

But...... how does it help those SME's who are owed money, but not by big business offenders? And how can businesses survive if they have to put so much effort into simply collecting the money they are owed? Is there not a better way?

What do you think?