By Daniel Hunter
Payment periods of up to 180 days are putting immense pressure on firms across the UK but perhaps spurred by the shock of some of the UK’s most well-known brands going to the wall over the past year, businesses are becoming seriously tenacious in the pursuit of large, unpaid debts according to commercial debt recovery law firm Lovetts Plc.
In Q4 2012, Lovetts saw the total value debt being chased through a Letter Before Action jump by 21% compared to Q4 2011 as businesses took decisive action to get their big bills paid. A letter before action issued by a solicitor is used to prompt payment prior to legal action and works in 8 out of 10 cases.
In addition, the average value of Court claims issued rose significantly and the total value of Court claims rose 34% demonstrating that businesses are only too aware of the dire consequences of large debts on their cash-flow and are taking a no holds barred approach to pursuing these debts.
And, in another clear sign that businesses are not simply standing by while customers sit on their cash, the total number of days between Invoice and Letter Before Action fell by 9 days and the time from LBA to a legal claim for payment fell by 6 days in the last quarter of 2012 — from 25 days in Q4 2011 to just 18 days in Q4 2012. Firms were therefore acting a total of 15 days sooner on unpaid debts than in Q4 2011.
While the news should be welcomed by Business Minister Michael Fallon who has declared war on big businesses who systematically pay late, many businesses are finding their hands tied when it comes to legal action simply because their terms and conditions have not allowed for the recovery of legal costs and compensation.
“No-one could accuse British businesses of being wet fish — far from it. Every business is only too aware that the build up of unpaid debt is a recipe for disaster," Charles Wilson, Managing Director of Lovetts said.
"The good news is that we’ve seen a huge increase in the value of the debts we’re being instructed to pursue as firms prioritise their biggest debts. 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.”
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