You have completed work for a valued client, provided them with a service or sold them your product. You send an invoice and wait for payment. Yet it doesn’t come…. You spend valuable time calling them and e-mailing them chasing payment, but it still doesn’t come. Frustration builds, and you start to worry about how the relationship with your customer will be affected. You become anxious about cash flow, relying on overdrafts, paying staff late and the threat of bankruptcy, not to mention how it will stunt the growth of your business as opportunities for investment are lost. And if you’re a sole trader or freelancer, late payers can directly affect your personal finances and family life, causing stress and worry. Sound familiar?
What can you do
Persistence, persistence, persistence!
It is a truth universally acknowledged that those who shout the loudest will get paid first. Frequent and persistent requests should get results. However, if you don’t have the time or resources to chase outstanding debts, consider outsourcing to a reputable debt collection agency to collect it on your behalf. One freelancer commented
“A client of mine got really irked off and would never work with me again. I wouldn’t have got paid if I didn’t end up ringing them every single day for updates!”
Did you know?...
You can claim interest and debt recovery costs if your client is late paying an invoice.
If you agree a payment date, it must usually be within 30 days for public authorities or 60 days for business transactions. You can agree a longer period than 60 days for business transactions - but it must be fair to both businesses. If you do not agree a payment date, the law says the payment is late 30 days after either the customer gets the invoice, or you deliver the goods or provide the service (if this is later)
The interest you can charge if another business is late paying for goods or a service is ‘statutory interest’ - this is 8% plus the Bank of England base rate for business to business transactions. You cannot claim statutory interest if there’s a different rate of interest in a contract.
So, what is the impact of late payments on a business?
One word – devastating.
According to recent research by BACS Payment Schemes, 1 in 5 small businesses say that they face bankruptcy if they are owed between £20,000 and £50,000. Shockingly, 7% of businesses say they are already in that danger zone! Almost 1/4 of small businesses say they rely on borrowed cash to keep up with essential overheads, most commonly by way of arranged overdrafts. Worryingly, 16 % of SMEs struggle to pay their staff on time….
One business owner admitted: “It killed one business, and I've had to use credit cards to get by in other cases”, another revealed “I had a client owe me a lot of money and they didn’t pay it until 6 weeks after it was due. I was unable to pay my mortgage and various other things... if it wasn’t for a short term loan I would have been screwed!”
So, what is the cost to SME’s?
Late payments cost smaller UK businesses more than £2bn a year!
The average time spent chasing late payments is almost 4 hours a week resulting in reduced productivity. The problem is so common that 12% of SME’s actually employ a specific role dedicated to chasing outstanding payments, a cost that could and should be avoided.
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