Local broker advice as more than half of SMEs experience issues with late paying customers
3rd February 2016
Late payments are causing serious problems for many SMEs, causing significant cash flow problems and risk some businesses closing according to Sheffield broker IFM Insurance.
This follows findings by Zurich's latest SME Risk Index which found late payments are an issue for more than half (53%) of Britain's small and medium-sized businesses (SMEs). Despite many businesses feeling that more needs to be done, existing legislation can already provide SMEs with some much needed assistance. According to IFM, when faced with late payments by customers, businesses have several statutory tools at their disposal, including the ability to charge interest and recoup debt recovery costs. John Leigh, Director at IFM Insurance said: -Understandably, many small firms may have concerns over enforcing their strict legal rights, including the fears of losing future business. However, fears of losing future business are often unjustified, and having clear terms and conditions from the outset can actually help foster lasting customer relationships. Broker top tip on late payments If no term has been specified, a payment is considered late after 30 days from the day a customer receives their invoice, or 30 days from when goods/services are delivered, whichever is later If no interest terms have been agreed via contract, statutory interest can be charged at 8% plus the Bank of England's base rate In addition to interest, businesses can charge a fixed rate (between £40 and £100 depending on the size of the debt) for the cost of recovering the debt. Suppliers can also claim for reasonable additional costs. Ensure each party is clear on their responsibilities, including those relating to timely payments, this reduces the chance of either party being surprised or disappointed by the actions of another.