By Daniel Hunter

An increasing number of businesses are turning to the law to tackle the scourge of late payment and reduce their losses, according to the latest quarterly figures from debt recovery law firm, Lovetts.

In its latest analysis of legal claims for overdue payments, Lovetts saw the number of claims issued rise by 16.6% between July and September, compared to the previous quarter. Furthermore, businesses are chasing smaller debts through the courts rather than writing them off as they may have done in the past - the average claim size has fallen by 15% quarter-on-quarter.

“As economic recovery continues to falter, Lovetts is seeing more businesses taking a harder line on late payment to protect themselves from the risk of bad debt," Charles Wilson, Managing Director of Lovetts said.

"There are many headlines about late payment being the biggest risk facing small businesses, and that message certainly seems to be spurring firms on to exercise their legal rights much more than before.

“However, we’re concerned to see that businesses are waiting too long to take action. Our figures show that the average time between invoice and a Lovetts Letter Before Action (LBA) being issued is much higher than it should be. We know that in many cases this is simply because companies are digging out very old debt and chasing it up, but there has been a noticeable increase in invoice age.

"In the past quarter, 43% of Lovetts clients have passed invoices for legal process collection which stand at over 100 days old, whereas in the previous quarter, the figure was 40%. This is still high, but we understand there are many reasons for this, not least attempts to secure repayment voluntarily.

“The LBA to claim time has fallen slightly, down to 26 days, compared to 28 days in Q2 of 2012. This underlines the core message that clients are more ready to take legal action than during the April to June quarter, which is positive news for businesses. Overall, people seem to be waking up and getting on top of their unpaid debt, which is the only way to protect the bottom line in a tough economy.

“It is vital that in order to take advantage of the Late Payments of Commercial Debts (Interest) Act 1998, businesses need to get their Terms and Conditions right, by stating clearly that the full cost of any debt recovery activity on overdue payments will be added to the invoice.

"At the start of any new commercial relationship, businesses should make it clear that clients are expected to pay on time, including details on how any overdue payments will be dealt with, to strengthen any claims later down the line. Clauses for the reimbursement of full legal costs under contract, if a debtor defaults, are an obvious example.”

Join us on
Follow @freshbusiness