Partner Article

Latest analysis from Lovetts shows ninety four days is limit for late payers

From gentle reminders to pointed demands, businesses are waiting 94 days on average before admitting defeat and using the threat of legal action through a Letter Before Action (LBA) issued by their solicitor to prompt payment on overdue invoices. This is based on analysis of work carried out in Q1 2014 by Lovetts plc, the commercial debt recovery law firm. With £4500 the average amount being chased through LBAs, Lovetts is urging businesses to act faster on debts to improve their chances of securing payment. The news follows recent reports suggesting SMEs spend 130 hours a year chasing payments*.

Although an improvement on 99 days in Q1 2013, 94 days is post invoice due date so businesses with payment terms of 30 days aren’t seeing the money they are owed for over 4 months, seriously impacting cashflow. However, in 80% of cases an LBA or Late Payment Demand (LPD) prompts payment.

While £4500 is the average amount chased with the threat of legal action, the debts being pursued through the Courts for payment average over £7000 per claim. This is an increase of 17% year on year suggesting businesses are focusing on securing their larger unpaid debts. The danger is that by threatening action on smaller debts and not following through, any future threats will not be taken seriously by the customer.

Charles Wilson, CEO of Lovetts says “Most businesses will start chasing within the first month after the payment is due, when this doesn’t elicit a response, they get tougher with phone calls, letters and emails. You can understand how the hours spent chasing can rack up. 94 days later and with no response they instruct us to issue an LBA or Late Payment Demand. While we can understand the delicate nature of some customer/supplier relationships, patience is not a virtue when it comes to chasing payments and businesses need to show they mean business, much sooner.

“We firmly believe the best way to tackle late payment is to make it clear, early on in the relationship that legal action will be taken against non-payers. It doesn’t need to get personal at this stage, just clear. As a matter of course, check invoices have arrived safely and are on the ledgers. This is basic housekeeping but too often falls down the priority list. If payment is not prompt, add up the costs of going legal early on i.e. interest, late payment compensation, indemnity costs under contract (make sure your T&Cs allow for this). Then tell the customer what that figure is. Explain your reluctance to escalate costs unnecessarily. £1,200 debts can easily grow by 50%, and businesses owe it to their customer to point it out.

“These actions will show customers that you won’t be a pushover and you will take action if you are not paid on time. At worst it will push you up the payment order at best it will prompt timely invoice payment both now and in the future.”

*Forum of Private Business

This was posted in Bdaily's Members' News section by Charles Wilson .