Small firms ‘vulnerable’ to late payment in current climate

Published: 23rd March 2007

Businesses are being urged to take a tough line on late payment, as the economic climate tightens with interest rates rising to combat increased inflation.

Law firm Mace & Jones said the UK's four million small businesses need to ensure their credit checking procedures are robust at a time when cash is tight.

Mace & Jones partner Duncan McAllister said late payment is now more of a threat to small firms following the Bank of England's decision to raise the base rate of interest three times in recent months to 5.25 per cent. The Bank has been raising interest rates in an attempt to curb inflation which recently has been running close to a three per cent upper limit set by Chancellor Gordon Brown.

"The scourge of late payment already contributes to the death of an estimated 10,000 - 15,000 firms each year with small firms owed an estimated £50bn a month," he said. "Late payment should not be tolerated and can be tackled with an effective credit control system. Too many businesses are paying late to sustain their own cash flow and undermining their suppliers in the process. We advise businesses large and small to 'get tough' on this practice. That means thorough management including credit checks on new customers and even existing customers, offering incentives such as discounts for prompt payment and making customers aware of their obligation to pay with prompt invoices.

Mr McAllister said businesses should be aware of their legal entitlement under the Late Payment of Commercial Debts Act (see notes to editors) to charge interest on debts by law.

"Chasing cheques can be enormously frustrating and horrendously time consuming," he said. "For these reasons bosses should consider outsourcing collections to a legal firm. The authority of a solicitor's letter can snap bad debtors out of their inertia and make them pay up quickly. Moreover using a lawyer saves business owners' time and money and allows them and their staff to get on with the job of managing and growing the business. "

Businesses wanting further advice on debt recovery can email duncan.mcallister@maceandjones.co.uk or call any member of Mace & Jones' dispute resolution team: 0161 214 0500 or 0151 236 8989.