A law firm says that many larger businesses are now paying their suppliers late as a ‘badge of honour’, and that legislation designed to protect small businesses is ineffective in halting a culture of late payment.
Lovetts, which specialises in debt recovery and related litigation, said that the total value of debts passed to the firm by clients had increased by 38% during Q2 compared to the first quarter of the year.
This mirrors findings published by Bacs earlier in 2012, which showed that SMEs in the UK were owed over £35 billion in total, a rise of £2 billion on the total owed six months earlier.
The Bacs study found that big businesses were the worst late payment offenders, and on average, small and medium sized businesses were waiting 29.6 days to be paid beyond the agreed terms.
Charles Wilson, CEO of Lovetts said that late payment legislation (a reference to the Late Payment of Commercial Debts (Interest) Act 1998) does not act as a deterrent to late payers, as many smaller businesses are don’t want to risk upsetting more powerful business customers by applying the terms of the Act.
Wilson said that was important to make it clear from the outset that your business will not tolerate late payment. You should also make your payment terms very clear on all contracts and invoices, and detail how your business deals with overdue invoices.
Interestingly, Wilson says that the late payment culture we have in the UK would not be tolerated in other European countries. For example, in Scandinavia, late payment simply is not culturally acceptable.
If you are concerned about a late paying client, try our credit control tips.