The best of a bad situation: How to survive Britain's late payment culture

  1. Kat Haylock

    Kat Haylock Community Editor Staff Member

    452 215
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    With the wreckage of construction giant Carillion’s collapse still smouldering, the scandal around late payment continues to grow in its wake.

    Carillion, accused of creating a “rotten corporate culture” in recent reports, fell into liquidation in March. The company left behind billions in unpaid invoices. It was a final slap in the face to small suppliers who struggled under Carillion's onerous 120 day payment terms.

    Carillion’s public demise has sparked a conversation about the culture of late payment amongst large firms. It's an issue that will be familiar to small businesses. An estimated 4.7% of UK small business revenue is written off through late payment each year. And around 50,000 firms fail because of poor payment practices.

    As Mike Cherry, Chairman of the Federation of Small Businesses said this week:

    “It’s hard for small firms to invest when £14 billion is being withheld from them due to late payments. If all of your working capital is tied up in invoices, then clearly you won’t have the cash needed to invest for the future. Following the collapse of Carillion, big corporations need to realise that late payments aren’t a smart move, they’re a threat to our economy.”

    Cherry also urged big companies to end the “bullying and abuse of the supply chain” and stop late payments once and for all.

    But while increased media attention might spark a much-needed policy change, it's scant relief to the businesses that'll spend this month - and the next and the next - trying to get paid the money they’re owed.

    Ultimately, punctual payment relies on the other business getting their act together. But there are a couple of things you can do to smooth the process.

    Be transparent about your expectations

    Unless you agree on payment terms from the start, the law doesn’t deem a payment as “late” for business transactions until 60 days have passed from the date:

    • The customer gets the invoice
    • Or, the supplier delivers the goods or the service (if this comes later)

    So if you’re relying on a payment to come through in fewer than 60 days, set clear expectations from the start.

    When arranging work for her content company, HazelC ensures her emails, T&Cs and invoices all clearly state her 14 day payment terms. She also adds a warning that there’s a 10% fee added to all late payments.

    It makes it hard to feign ignorance since she’s been consistent about her terms throughout the transaction.

    At 14 days, she sends a friendly reminder that the payment is required by the end of the day. If there’s no response, she sends another email the next day with the 10% charge added and a warning that the company has seven days to pay - and if there’s no payment after that, it will be sent to credit controllers.

    It’s worth noting that larger, corporate companies work differently to small businesses. You’ll need to be more flexible about your conditions. They have processes and may not do payment runs very often. As bovine says, the trick to getting paid is to understand what you need to do to get paid when you want - but don’t find yourself agreeing to payment terms that exceed 60 days.

    Chase up those small amounts

    When one forum member found herself chasing up a “measly” £70 invoice, she worried her letter would sound like “a pathetic threat”. It’s all too easy to forego the hassle of chasing what you consider to be a small amount of money, but don’t be embarrassed into writing it off.

    If you’re a B2B company, you can add £40 compensation to an invoice of up to £999.99 under The Late Payment of Commercial Debts (Interest) Act 1998. For invoices of £1,000 to £999.99, the compensatory charge rises to £70, and if your invoice is over £10,000, you can charge £100. It’s worth highlighting that this is per invoice, so multiple unpaid invoices would warrant multiple charges.

    In addition to this, late payments will incur interest, which is typically judged at 8% above the Bank of England base rate. This interest can be claimed from the due date of the interest, up until the date it’s paid.

    If you’re still worried that the payment amount is too small to take to court, keep chasing the customer every couple of months. Depending on the type of debt, it won’t be statute barred until the time since your last contact with the customer has reached six years.

    Best case scenario, of course, is that you’ll get paid long before this. But if you find yourself battling radio silence, there’s light at the end of the tunnel too. As long as you keep contacting them every few months, obscure says, you can keep adding interest until the debt becomes worth chasing through Money Claim Online.

    Consider payment methods for domestic work

    While it might make sense to invoice commercial companies who pay monthly, domestic work is a little different. Treating a domestic customer like a commercial one is likely to backfire, especially if you try to push payment terms or add punitive fines.

    As Chris Ashdown points out, there’s an important reputational risk to consider with smaller, domestic customers. Charging extra money for late payment might get you a couple of pounds more, but you also run the danger of them telling everyone they know that you fleeced them for extra cash.

    If you’re a tradesman, consider asking for payment in advance or getting a card reader and taking the payment before you walk out of the door.

    Don’t be afraid to leave the bad customer

    If you’re having continual payment issues with a customer and you can afford to lose them, consider cutting ties. The time you spend chasing payment is time you could be spend on your business. And, ultimately, the customer probably isn’t worth the hassle.

    As Jeremy Hawke puts it: know what you are worth, because if you don’t, somebody else will tell you what you’re worth, and it’ll be a lot less.

    Useful links

    How to issue a polite reminder about an overdue invoice

    Late Payment of Commercial Debts (Interest) Act 1998

    How to write a Letter Before Action

    Making a money claim online (gov.uk)

    Have you struggled to get paid on time? Do you have any suggestions you'd give to anyone else in the same situation?

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  2. Michael Loveridge

    Michael Loveridge UKBF Newcomer Free Member

    19 14
    The best way of getting paid if the customer is a limited company is a winding-up petition. Surprisingly, a petition can be issued for any debt over £750 providing it's not contested on any genuine grounds. I've issued dozens over the years, and they are by far the most effective method of getting payment.

    The County Court system is utterly useless these days. Any half-intelligent or competently advised debtor can easily spin out County Court proceedings for months, and if the debt's less than £10,000 it's classed as a small claim, so you can't normally recover any significant legal costs. Consequently, if you employ a lawyer you can end up out of pocket even if you ultimately get judgment.

    And even when you do get judgment the court won't do anything of their own volition to help you get paid. You then have to pay even more court fees to enforce the judgment.

    A winding up petition, on the other hand, is not accompanied by any `how to avoid paying this debt' rubbish, such as the County Court send out. It can be advertised in the London Gazette within a couple of weeks of it being served on the debtor, which means their bank accounts are frozen the same day. Believe me, that does grab their attention!

    Yes, it's relatively expensive to issue one, but assuming the company actually has the money you'll get it back as well as the payment, and if you've employed a decent lawyer to deal with it you should also be able to get your legal fees paid as well.
     
    Posted: Jun 1, 2018 By: Michael Loveridge Member since: Aug 2, 2013
    #2
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  3. AlexSmith2

    AlexSmith2 UKBF Newcomer Free Member

    8 2
    Great article.

    "If you’re still worried that the payment amount is too small to take to court, keep chasing the customer every couple of months." - I wouldn't say chasing up once every couple of months would deliver any results. Try once every couple of hours.
     
    Posted: Jun 1, 2018 By: AlexSmith2 Member since: Mar 16, 2018
    #3
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  4. Ian J

    Ian J Factoring Specialist Full Member - Verified Business

    4,820 1,360
    That's going from the sublime to the ridiculous.

    As much credit control as possible should be done by telephone making sure that you take the person's name that you are talking to. The customer should make some sort of promise or commitment of payment and the time to telephone again is if and when that promise hasn't been kept.
     
    Posted: Jun 6, 2018 By: Ian J Member since: Nov 6, 2004
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  5. Jasondb

    Jasondb UKBF Contributor Free Member

    98 5
    I think this is a good topic yet as the article says you have little leverage over corporates who may sign terms with you agreeing later payments. I suspect to improve this industry regulation would be needed to force corporates to comply with a shorter time frame to pay. Of course that might cause a few of the dodgy ones to go under quicker yet to my mind still needs to happen.
     
    Posted: Jun 11, 2018 By: Jasondb Member since: Apr 23, 2018
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  6. DavidWH

    DavidWH UKBF Enthusiast Free Member

    1,183 209
    The obvious one is to avoid giving credit unless essential. We reduced the number of credit accounts to a handful... what is the point in giving a customer 30 days (often more like 60 or 90) credit, when they place small orders and handful of times a year?

    Close lapsed accounts, that regular customer who you've not heard from in 6months suddenly reappears, don't go dishing credit out... they may have racked up debts with other suppliers and just doing the rounds before going bust.

    Get a purchase order, in place of that a signed order acknowledgement, something that should you have to take legal action can be prove the order was placed, same with delivery notes, prove it was delivered and received.
     
    Posted: Jun 13, 2018 By: DavidWH Member since: Feb 15, 2011
    #6
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