By Daniel Hunter
Hot on the heels of reports suggesting businesses were more prompt paying their bills during 2012, fresh figures for the first quarter of 2013 from commercial debt recovery law firm, Lovetts Plc tell a different story this year.
In stark contrast to a year ago (Q1 2012), businesses have eased off the pressure on their paying debtors, whether by accident or design, and are now allowing them 16 days extra to pay before the threat of legal action through a Letter Before Action (LBA).
Lovetts has calculated that the average time from invoice to LBA in Q1 2013 was 93 days compared to 76 days in Q1 2012. Considering most businesses have payment terms of 30 or 60 days, firms are allowing invoices to become at least 33 days overdue before taking action.
However, once the LBA has been issued, there’s little hesitation in proceeding with a legal claim for payment — businesses in Q1 2013 on average instructed legal action 20 days after the LBA has been issued, compared to 24 days in Q1 2012.
“We have a conflicting picture here. On the one hand businesses are slower when chasing up debts themselves — this could be because there’s less pressure to collect cash, but is more likely to be down to lack of resource in credit management departments," Charles Wilson, Chairman of Lovetts, commented.
"However, once we’re instructed to issue an LBA, our clients are following through with their legal threats far quicker. This is important as they are identifying those late payers who are a threat to their businesses and may create a bad debt. If they don’t chase hard, debtors will learn only-too-quickly who is a soft touch and which invoices can be left at the bottom of the pile. ‘Cry-wolf’ too often and the threat of legal action will fail to elicit the response it deserves.
“With the quieter summer season fast approaching, when businesses often fall behind on chasing payments due to annual leave and staff shortages, companies would be wise to take this opportunity with the start of the new financial year, to get back on track. A gentle reminder before payment is due often works wonders, and we have found that a simple and cost-effective LBA secures overdue payment in eight out of ten cases.”
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