The UK economy may be finding its feet once again, but SMEs are still worried about the risks posed to their bottom line by customers failing to pay on time, or at all.
In a survey by the Forum of Private Business, 23% of its members said late payment has increased in the past 12 months, with only 3% citing a decrease.
When an instance of late payment occurs, 29% say the number of days the payment arrives late has also increased, while 8% say late payments are arriving more promptly than a year ago.
For 19% of the survey’s respondents – very nearly one in five firms – the ‘double whammy’ of increased lateness in both number of incidents and number of days late has hit their accounts in the past year.
Phil Orford MBE, chief executive of the FPB, said: “Upwards of £30 billion remains tied up in late payments, costing a typical small business 130 hours a year to chase and meaning that a third are forced to seek external finance to cover the gaps in cash.”
At CPA we have developed a simple six-step process to help reduce the risk of payments going overdue:
- Contact the customer 48-72 hours before their deadline, reminding them that payment is due.
- Seven days later, contact them stating that payment is now overdue and needed urgently.
- Write again, this time threatening late payment fees and statutory interest charges.
- Make clear that recovery action will commence – at an additional cost – if payment is not made.
- Write again, this time adding appropriate interest and fees to the amount owed.
- Send a final demand, making clear this is the last chance to pay before referral to a collections agency.
Following this process ‘builds a bridge’ between the initial invoice and the subsequent debt recovery action, and can protect you against the debtor later arguing that they were not aware the debt was owed.
Each additional letter you send out may feel like an administrative burden, but it also increases the burden on the debtor, and when this becomes too much to bear they are likely to pay up in full, simply to bring the matter to a close.