Don’t Let Bad Debt Cripple Your Business
Prevention is of course better than cure when it comes to late payments and bad debts in a business of any size and that means having robust terms and conditions in place to offer legal protection if a customer fails to pay when due. But Terms & Conditions aren’t worth the paper they are written on if the terms are not enforced and sadly this is proving to be the case amongst many SMEs through fear of alienating customers.
In fact we’ve found that 58% of small to medium sized businesses wouldn’t claim compensation for fear of damaging customer relationships. This is despite the fact that almost 1 in 4 businesses are being paid, on average, one to two months late. Furthermore, 60% wouldn’t make any claims from ex-customers because it would affect their reputation.
While the Government has plans to create a dispute resolution service to help tackle late payment to small businesses, in many cases there’s no dispute to be resolved, it’s simply one business failing to pay another in order to protect their own cash reserves.
Claim What Is Rightfully Yours
So what’s to be done? Well, in our experience, the fear of upsetting customers or creating a bad reputation are unfounded. Businesses need to take a stand and claim what is rightfully theirs. It’s not difficult and doesn’t need to be costly. Indeed there are regulations now in place that can effectively make debt recovery cost free! So there really is very little to lose from taking action, whether it’s instructing a Letter Before Action to be issued (at the cost of a “very cheap” cup of coffee) to claiming late payment compensation.
Take Action With Late Payment Compensation
The Late Payment act allows any business paid late to claim interest for the period the debt was overdue, plus compensation, if their contract terms allow it. The entitlement to claim interest and compensation remains for six years on each and every invoice (or payment point) paid late, unless clear assent is proven against the claimant. That means you can recover compensation of between £40-£100 per invoice, plus reasonable costs on any debts, which are now paid, but were paid late over the previous six years.
A lot of this comes down to the terms and conditions which form the basis for the relationship – if it’s made clear from the outset that compensation will be claimed if payments are overdue, then there’s no surprises and in fact, it can often incentivise customers to pay within terms to avoid the additional cost. This is the best way to get a grip on the bad debt culture that is so pervasive in the UK today.