03/07/2015

By Beatrice Bartlay, entrepreneur and founder of 2B Interface

Late payments are the scourge of businesses throughout the UK and are killing the inherent entrepreneurial spirit of Britain. The recent Budget didn’t even address this issue, despite the planned formation of the Enterprise Bill from the start of government.

Over the past few years I have been repeatedly calling for action to be taken on late payers, including looking at imposing fines on businesses that fail to pay their suppliers promptly. For many small businesses, cash flow is king. If a business does not pay their supplier on time then that has a huge impact on that enterprise, which then ends up acting as paymaster and banker. This simply cannot be fair or equitable and has been a huge challenge throughout the economic downturn.

What is needed is a thorough review of the legal framework when it comes to late payments. It simply cannot be fair for business can end up being the banker for another . There are enough examples out there in the market: from retailers putting the squeeze on farmers, to larger businesses holding their suppliers to ransom over payment terms. Something needs to be done. For small businesses to thrive, they need to focus on cash flow, not act as banker of last resort for other enterprises.

The current system is predicated on one blunt ‘rule’ — everyone should be working to 30 days payment terms or else face a small claims court. This is clearly not fit for purpose. First, it treats businesses of all sizes the same, despite the additional dangers that late payments pose to small businesses over bigger ones. Second, even when a company is taken to a small claims court over a late payment, the law is currently in favour of the debtors rather than the claimant. Lengthy and costly, these proceedings can further drain on a small business claimant’s finances.

The government needs to act to properly support businesses chasing late payments. This week’s news of government plans to appoint a Small Business Commissioner will go a long way in supporting businesses against the spectre of late payments, as well as supply-chain bullying, forcefully requesting fees for lengthened contracts. However, there are steps that small businesses can take to tackle this issue head on right now:

Firmly agree terms in advance

Being on the same page with your client company is key to ensuring payments are made to you in a timely manner, with the paying company personally accountable if they do not meet your agreement.

Make sure authorised representatives from both companies sign the payment agreement, with each signee clearly named. Try and get as many details as possible shared in this agreement, including the services or goods you’re providing, the bank details of your customer and who is the best contact for your invoice. This will make the invoicing process much more straightforward.

The Department for Business, Innovation and Skills itself states that “evidence suggests that the best way of securing timely payment is to agree terms in advance of the transaction and to invoice timely and accurately.”

Hold your ground against big companies

However, the advice from the government fails to take into account the pressures hat many SMEs are under from larger organisations to compromise their terms and payment deadlines. The need to secure business with a big client can lead some business owners to make concessions to their principles to meet their demands.

However, UK SME owners need to stand their ground on these matters. For small businesses, payment terms should be viewed in the same way as wagers — employees and contractors would not stand for flexible payment windows, and neither should small businesses.

Use the law to your advantage

Sadly, despite an SME’s best efforts to strike fair terms, some companies still do not meet payment deadlines properly. If this happens, you’ll need to seek out legal action in support of your claims. As outlined above, this is clearly not ideal and can lead to plenty of time and money wasted for both parties.

While some late paying companies cannot be predicted, you can go some distance in avoiding this outcome by thoroughly researching a company before doing business with them. Make sure you carry out thorough credit checks on any potential customers/businesses you deal with. If there’s anything that makes you nervous about doing business with them, make sure you consider any agreements carefully.

The recent budget, just like in November, did not address the issue of late payments. However, I am confident that with the support of the industry and the Government, long overdue changes will come. The damage late payments can have on businesses must be prevented government, who need to provide greater support for claimants subject to late paying clients and customers.