Month: July 2023

So how big is the problem of late payments to small businesses?

The FSB’s latest survey found that the average outstanding amount due to late payments for small businesses in the UK is £8,500. This is an increase of 12% from the previous survey in 2021.

The average outstanding amount can vary depending on the industry. For example, the average outstanding amount for businesses in the construction industry is £12,000, while the average outstanding amount for businesses in the professional services industry is £6,000.

The cost of late payments can be even higher for businesses that are in the early stages of growth. This is because they are more likely to be cash-strapped and less able to afford to wait for late payments.

The FSB is calling on the government to take action to address the problem of late payments. The FSB is also calling on businesses to sign up to the Prompt Payment Code, a voluntary code of conduct that sets a target of paying 95% of invoices within 30 days.

Late payments hurt some businesses more than others

The cost of late payments can be even higher for businesses that are in the early stages of growth. This is because they are more likely to be cash-strapped and less able to afford to wait for late payments.

Late payments can have a significant impact on small businesses. They can lead to cash flow problems, increased costs, and even bankruptcy. For example, if a small business does not receive payment for a product or service it has delivered, it may not be able to pay its own bills. This can lead to a spiral of debt and ultimately bankruptcy.

There are a number of factors that can contribute to late payments. In some cases, it is simply a matter of poor cash flow management on the part of the customer. However, in other cases, late payments may be a deliberate attempt by the customer to avoid paying what they owe.

Whatever the reason, late payments are a serious problem for small businesses. They can have a devastating impact on a business’s ability to operate.

What can small businesses do to protect themselves?

There are a number of things that small businesses can do to protect themselves from the impact of late payments. These include:

• Setting clear payment terms.
  When you agree to provide a product or service to a customer, make sure that you set clear payment terms. This should include the due date for payment and the consequences of late payment.
• Using a payment processing system.
  A payment processing system can help you to track payments and send reminders to customers who are late.
• Being proactive in chasing payments.
  If a payment is late, do not be afraid to contact the customer and ask for an update.
• Joining a trade association.
  Trade associations can provide support and advice to small businesses on late payments.

Tips on collecting payments

If a customer does not pay their bill on time, you may need to take steps to collect the payment. Here are some tips on how to collect payments:

• Send a reminder. The first step is to send a reminder to the customer. This should be a polite reminder that the payment is due. You can send the reminder by email, mail, or phone.
• Follow up. If the customer does not pay after the reminder, you should follow up. This could involve sending another reminder, calling the customer, or sending them a letter.
• Be polite and professional. Even if the customer is not paying their bill, it is important to be polite and professional. This will help to maintain a good relationship with the customer, even if they do not pay.
• Be persistent. Do not give up if the customer does not pay their bill the first time. Keep following up and taking steps to collect the payment.
  Know your legal rights. It is important to know your legal rights before you take legal action. This will help you to protect your interests and ensure that you are not taken advantage of.
• Take legal action. If the customer still does not pay, you may need to take legal action. This could involve sending them a letter before action, issuing a County Court Judgment (CCJ), or taking them to court.

What steps are small businesses entitled to take?

Small businesses are entitled to take legal action if a customer does not pay their bill. However, there are some restrictions on what they can do. For example, they cannot charge interest on late payments unless the customer has agreed to this in writing.

The amount of money that a small business can recover from a customer who does not pay their bill is limited to the amount of the invoice plus any interest that has been agreed to. In addition, the small business may be able to recover their legal costs.

Your rights and what you need to know about charging interest on late payments

In the UK, the law on charging interest on late payments is governed by the Late Payment of Commercial Debts (Interest) Act 1998. This Act allows businesses to charge interest on late payments if the customer has agreed to this in writing. The rate of interest that can be charged is the statutory rate of interest, which is currently 8% plus the Bank of England base rate.

The statutory rate of interest is reviewed every six months and can change. It is important to check the current rate of interest before you charge interest to a customer.

If a customer has not agreed to pay interest on late payments, you cannot charge them interest. However, you may be able to recover your legal costs if you take legal action to collect the debt.

Here are some additional things to keep in mind about charging interest on late payments:

• You must have a written agreement with the customer. The agreement must be in writing and it must specify the rate of interest that will be charged.
• The interest must be reasonable. The interest rate must be reasonable and it must not be excessive.
• The interest must be applied correctly. The interest must be applied correctly and it must be calculated correctly.

If you are unsure about the law on charging interest on late payments, you should seek legal advice.

What can the government do to help small businesses late payments?

The government can also play a role in helping to tackle the problem of late payments. This includes:

• Introducing a statutory minimum payment period. This would set a minimum time period within which businesses must pay their invoices.
• Making it easier for small businesses to take legal action against late payers. This would give small businesses more power to recover the money they are owed.
• Providing financial support to small businesses that are affected by late payments. This could include loans or grants to help businesses cover their costs.
• Reforming the Prompt Payment Code. The government is currently reforming the Prompt Payment Code, a voluntary code of conduct for businesses that sets a target of paying 95% of invoices within 30 days. The reforms aim to make the code more effective and to increase the number of businesses that sign up to it.
• Introducing a statutory minimum payment period. The government is considering introducing a statutory minimum payment period, which would set a minimum time period within which businesses must pay their invoices. This would help to protect small businesses from late payments and would give them more certainty about when they will be paid.
• Making it easier for small businesses to take legal action. The government is also considering making it easier for small businesses to take legal action against businesses that do not pay their invoices on time. This would help to ensure that small businesses can recover the money that they are owed.
• The government is also working with businesses to raise awareness of the problem of late payments and to encourage businesses to pay their invoices on time.

Additionally, the following legislation is presently being considered:

• The Late Payment of Commercial Debts (Amendment) Bill. This bill would reform the Late Payment of Commercial Debts (Interest) Act 1998, which sets out the rules on charging interest on late payments. The bill would make it easier for businesses to charge interest on late payments and would increase the amount of interest that can be charged.
• The Small Business Payment Practices Bill. This bill would introduce a statutory minimum payment period for businesses that do not pay their invoices on time. The bill would also make it easier for small businesses to take legal action against businesses that do not pay their invoices on time.

What is the Prompt Payment Code?

The Prompt Payment Code is a voluntary code of conduct for businesses that sets a target of paying 95% of invoices within 30 days. The code was established in 2008 by the Office of the Small Business Commissioner (OSBC) on behalf of the Department for Business, Energy & Industrial Strategy (BEIS).

The Prompt Payment Code is designed to help small businesses by ensuring that they are paid on time. The code sets out a number of principles that businesses should follow, including:

• Paying invoices within 30 days.
• Giving clear guidance to suppliers on terms, dispute resolution, and prompt notification of late payment.
• Encouraging other businesses to adopt the Prompt Payment Code.

Businesses that sign up to the Prompt Payment Code are required to publish a statement on their website that they are a signatory to the code. They are also required to report their performance against the code to the OSBC each year.

The Prompt Payment Code is not legally binding, but businesses that do not comply with the code may be subject to reputational damage. The OSBC also has the power to issue warnings and guidance to businesses that do not comply with the code.

The Prompt Payment Code is a valuable tool for small businesses. By signing up to the code, businesses can demonstrate their commitment to paying their suppliers on time. This can help to improve relationships with suppliers and can help to protect businesses from the financial problems that can be caused by late payments.

Here are some of the benefits of signing up to the Prompt Payment Code:

• Improved relationships with suppliers.
• Reduced risk of late payments.
• Increased customer satisfaction.
• Improved reputation.

Reforming the Prompt Payment Code

The Prompt Payment Code is currently undergoing a reform process. The reforms aim to make the code more effective and to increase the number of businesses that sign up to it.
The reforms include:

• Strengthening the code’s enforcement mechanisms.
• Making it easier for small businesses to take legal action against businesses that do not pay their invoices on time.
• Requiring businesses to report their performance against the code more frequently.

The reforms are currently being consulted on, and it is expected that they will be implemented in 2023.

The Prompt Payment Code is a valuable tool for small businesses, and the reforms are designed to make it even more effective. By signing up to the code, businesses can demonstrate their commitment to paying their suppliers on time and can help to protect themselves from the financial problems that can be caused by late payments.

Here are some of the benefits of the reformed Prompt Payment Code:

• Stronger enforcement mechanisms. This will make it more likely that businesses that do not comply with the code will be held accountable.
• Easier for small businesses to take legal action. This will give small businesses more options if they are not paid on time.
• More frequent reporting. This will help to ensure that businesses are meeting the code’s requirements.

If you are a small business, we encourage you to consider signing up to the Prompt Payment Code. It is a simple way to help protect your business from the impact of late payments.