Late payments cost the UK economy almost ยฃ11 billion per year and cause 38 UK businesses to close every day. Government research shows 28% of businesses are affected by late payments each year, so what can you do to avoid being caught out by unpaid invoices? Hereโs some advice on how to deal with late payments for small businesses in Surrey.
Itโs important you know how to deal with late payments, as it can impact your cash flow, your ability to pay suppliers, and ultimately the future of your business.
Preventing late payments
The first thing you can do to protect your business against late payments is take some steps to prevent invoices from going overdue.
Make sure you send invoices on time and with clear payment dates so there is no room for ambiguity. The Government recommends a 30-day notice period from the date the invoice is issued.
Include a clause in your invoice or contract setting out late fees – you can use the UK statutory interest rate for business-to-business transactions, which is set at 8% plus the Bank of England base rate.
And if cash flow is a concern, consider requiring upfront deposits or shorter payment terms if agreed by the client.
When a payment is late
The UK Government says a payment is late if itโs overdue by more than 30 days after the customer receives the invoice or the goods or services have been delivered (if this is later), unless another payment term has been agreed.
When dealing with a late payment, the first stage to is send a polite reminder that the invoice is overdue. Often, contacting the customer to let them know their payment is late will be enough to prompt a payment or start a conversation if there is an issue.
If you get no response, you can send a demand letter and a new invoice with a late payment fee included. You can use the Small Business Commissionerโs invoice calculator to work out the late payment interest owed.
If repeated reminders and demand letters are ignored, you can send a final demand letter outlining a deadline for payment before legal action is taken.
Taking legal action
At this stage you can contact the Small Business Commissioner for support with disputes. Available support includes mediation before taking legal action, which can be costly, and damage the client relationship for good. Find out more about the support offered by the Small Business Commissioner here.
For debts under ยฃ10,000, you can make a claim through the small claims court, which is a simpler and more cost-effective option than full legal proceedings.
If you’ve tried the other tactics and still haven’t received payment, as a last resort you can take legal action. This involves starting court proceedings and may mean instructing a collections agency for debt recovery.
If you need free, practical advice on running your business in Surrey, access our Business Support form here.
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