Small Firms - Get Tough on Late Payers
Do you ever have problems getting people to pay up? Are you a small company playing with big boys who often take a leisurely stroll to find their cheque book? You’re not alone.
Yesterday’s newsletter from www.startup.co.uk included an article urging small firms to get tough on late payers. It talked about how late payers are forcing many small businesses under, some 10,000 - 15,000 per annum - what an incredible amount. Not only that, but each month small businesses are owed an estimated £50bn - I think you’ll agree that’s a lot of cash. So what can we do about this?
The article suggests small businesses should perform better at getting paid. It suggested tactics such as conducting credit checks on new and existing customers, offering incentives such as discounts for prompt payment, and also sending invoices promptly. All great ideas and highly practical.
It also stated that we should know our legal entitlements under the Late Payments of Commercial Debt Act. I can’t agree more. So if you are servicing clients in the UK, check out a summary of the Act here.
Probably the most interesting part of the act is that as a small businesses (less than 50 employees) you are entitled to charge interest at base rate PLUS 8% on any debt over 30 days old. That’s an incredible 12.25% at current rates. Now that gives you some real playing power doesn’t it?
That was my first reaction, then I got to thinking that as a small firm how could I ever enforce this? Think about it, if you try to charge interest on overdue payments, it’s likely you’ll incur high charges from your solicitor. Not only that, you’re likely to destroy your relationship with that client.
My own recommendation for getting paid promptly is to maintain strong relationships with your everyday client contact, but also those in the accounts payable team. this will help you to smooth over any accounting issues as they occur.
If you have any ideas for how to get better at being paid then please share them here. Maybe we could create a resource of tactics for all small businesses.
Tag:Legal
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