Crackdown on late payers as small firms turn away business

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Companies are starting to turn the screw on late payers and smaller firms are beginning to turn away business, rather than facing lengthy waits, according to two new studies.

Commercial debt recovery law firm Lovetts says there has been a 34 per cent increase in legal claims for payment.

Meanwhile, Barclays Bank says more than a fifth of small and medium sized businesses have declined future business from customers in the last year in an attempt to tackle late payments.

Lovetts says the shock of seeing some of the UK’s best known brands go to the wall has resulted in companies tenaciously pursuing large debts and more than halving the time they will wait before starting legal action

Lovetts’ managing director, Charles Wilson, said: “Clearly the trend is going in the right direction, with companies hot on the heels of late payers by focusing on their collection process and passing out more debt value for collection, in the continuing tough financial climate.

“However, we urge more businesses to focus on getting their terms and conditions right, with a clear statement that the full cost of any debt recovery activity on overdue payments will be added to the invoice.

“Lay out payment expectations at the start of any new commercial relationship or project and then act on late payments, taking steps to limit the impact of unpaid debt.

“This way the power is in your hands rather than completely in the hands of your customer.”

Barclays says that UK SMEs are currently owed more than £36 billion in late payments, causing serious cash flow problems. In Yorkshire, 88 per cent of SMEs have been hit by late payments during the last two year, with more than half saying repeat offenders are paying late three times a year or more.

The bank’s research shows that almost a third of SME bosses in Yorkshire have had to use personal money or assets to boost their cash flow and one in eight have seen their businesses come close to failing because of late payments. Caroline Pullich, head of relationship banking for Barclays in Yorkshire, said: “Minimising late payments and effectively managing cash flow is crucial for the survival, as well as the growth of small businesses.

“With one in five businesses that cease trading citing bad debt as the reason, it is vital that SMEs tackle this problem and take action before it is too late.”