It would be unusual for any business owner reading this article to be unaffected by debt. Debt owed to businesses in the UK in 2014 reached over £12.5bn. So it is safe to say commercial debt is not likely to go away any time soon. So, how good is your cash flow?
This article includes practical steps and tips to help improve your cash flow and profit by managing late payments and minimising debt.
The key to getting paid is to act quickly. Getting legal advice is not costly, a solicitor’s letter can cost as little as £10.
Why small and medium-sized businesses (SMEs) are hit the hardest
- Research shows small bills are paid last (£100 to £1,000) and bills over £20k were paid the fastest.
- Compromises the amount of money available to invest back into the business to help it grow.
- Damages business relationships built up over time which disrupts the supply chain and as a negative impact on business reputation from which there may be a long-lasting and difficult recovery.
Bacs research in 2015 revealed that 76% of businesses in the UK are affected by late payments with some stretching to six months beyond the payment terms. The extra time taken to chase late payments for small business owners can be an unwanted distraction for day-to-day running and building up the business. So, it is no surprise that if you are in this situation, you may consider writing off small, old, bad business debts which are difficult to recover.
The daisy-chain effect of late payments
Knock-on effects of late payments over time can mean that your cash flow slowed, you may enter into debt, and ultimately your business might be unable to pay its own suppliers. This affects the whole supply chain. BACS revealed that 23% of businesses were forced to pay their own suppliers late. The story behind this figure is the damaging chain of late payments and cycle of accumulating debt.
Damage to business reputation
‘It takes 20 years to build a reputation and five minutes to ruin it.’ Warren Buffett
Damage can happen on two levels: between business owners and regular suppliers, and through negative reviews which can have a far-reaching impact on how people view a business (and whether they want to deal with that business).
3 ways to help you recover debt
1. Check and update your paperwork. Does your business clearly state payment terms on invoices, statements and within terms of business? Include in writing your intention to pursue non-payment if the terms are exceeded.
Do your terms of business include provision for interest? If not, then the Late Payment of Commercial Debts (Interest) Act 1998 will apply. It was set up to deter late payment of debts by compensating creditors. You can claim for interest and compensation for unpaid invoices if you have supplied commercial goods and services to a buyer for business purposes, and the contract is not governed by a consumer credit agreement. At this point you can send a Late Payment Demand.
2. Unable to recover the money? When the going gets tough, you can send a Debt Chasing Letter.
3. Take legal action. When you have tried various ways to recover the debt, contact an experienced third party to collect the debt for you. The process needs to be quick and efficient so it is affordable. Make sure the business you choose has a good reputation and understands you and your business. A County Court Judgement (CCJ) orders the money to be paid (at a cost to you). As a very last resort, bailiffs can get involved.
When should you ask for legal advice?
Seek legal advice as soon as you can. This is likely to cost less than you think and has a high success rate for recovering money owed to your business.
For as little as £10, a solicitor can provide a letter to chase your debt and for around £100, proceedings can be issued to recover your debt.
The longer the debt is outstanding, the harder it is to recover. If a company finds itself in financial distress, be polite, but persistent and firm – your business is then less likely to go to the back of the queue for payment!
For a free, no-obligation discussion to recover money owed to your business, please contact Alex, our commercial debt recovery expert.
Email: [email protected]
Phone: 0151 666 6776
Mobile: 07393 233385
Update on the Debt Protocol
The Pre-action Protocol for Debt Claims is to be introduced in 2017. It applies if the debtor is a sole trader and for businesses dealing with an individual. The protocol aims to reduce the huge number of claims reaching the courts and reduce the burden of paperwork needed to chase debts.
Watch this space for updates.