UK Businesses Still Slack over Late Payments
Despite news that UK economic growth picked up in the second quarter of 2013, rather than tightening their credit control processes to support financial recovery UK businesses appear to have relaxed their attitude to late payment, according to the debt recovery law firm Lovetts.
The firm reports that compared to H112, in the first half of 2013 businesses allowed their customers an extra 28 working days on top of their standard payment terms in which to pay, before they instructed a letter before action (LBA) threatening legal action to recover the outstanding payment.
As a result, firms are now waiting an average of almost four months before they take the first steps to recover money owed for products and services. However, once the LBA had been issued the gloves effectively come off and the firm’s clients are following up with legal action an average of just over 20 working days after issuing the LBA.
“It is encouraging to see that businesses are not making empty threats and do follow up and pursue their customers through the courts to get back money owed to them,” said Charles Wilson, chief executive officer (CEO) of Lovetts.
“However, it seems that firms have been keeping existing customers happy and do not want to risk damaging relationships, hence the long delay after issuing an invoice before chasing up the payment. Clearly, protecting business relationships is essential, but if the cost of that is affecting a company’s own cashflow it is not sustainable business practice – firms are effectively bank rolling their customers.
“A recent survey from the Forum of Private Businesses (FPB) showed that late payment is causing greater concern for businesses in 2013 than it did in 2012, with the percentage of respondents citing this concern rising from 33% to 38%. It is unsurprising that this is a big issue for businesses, particularly smaller firms with less stable cash flow, but the only way to improve late payment recovery is to act early in chasing up invoices and to show that late payment will not be tolerated.
“We advise our clients to remind their customers of the payment date before it becomes due, to increase likelihood of payment on time. In order to keep a good credit control procedure in place, businesses must act early and show customers that they are serious about getting paid on time. The best way to do this, is to ensure that the debt recovery process, including recovery of legal fees and late payment compensation, are stated in the contract terms and conditions so there can be no misunderstanding.”
The firm suggests the following 10 point plan to tackle late payment: