Late payment remains a problem for the majority of SME businesses, and it can be hard to determine the right point at which to escalate matters.

Scale of the problem

There have plenty of recent surveys showing the extent of the problem:

  • £24 billion is owed to SMEs, £11 billion of which is by large business (Bacs)
  • 53% of SMEs are being paid late, an increase on the 45% paid late in 2010 (Bacs)
  • The average SME is owed £40,857, of which £20,937 is late (Tungsten)
  • 23% say late payment put their business at risk of closure (Tungsten)

It seems the late payment legislation is improving matters when it comes to payments from the public sector, but is still having minimal benefit for SMEs needing payment from large businesses.

Small business commissioner

The recent Small Business, Enterprise and Employment Act 2015 has made provision for a Small Business Commissioner, to deal with outstanding payments and supply-chain bullying, and a consultation was carried out in July and August 2015.

The commissioner’s role has initially been intended to cover information and guidance, mediation and complaints, however mediation has since been removed, despite it being broadly supported within the consultation. We will wait to see what impact they make once everything is set up.

What can be done?

That point at which the business decides to escalate the matter to recovery will vary according to the relationship with their customer, whether the customer might be lost as a result and the potential impact on the business of continued non-payment.

We would suggest that you start following up as soon as the invoice becomes overdue – if nothing else, this will tell the customer that payment is required and that you are on top of your credit management. A formal escalation procedure is always good practice.

If your customer is not paying because they have cash flow problems, the longer you leave chasing, the less likely they are to have assets remaining that can be seized in enforcement action and sold to pay the debt, so timely action is essential.

Once you have got to the stage of issuing a letter before action and still not been paid, you are without a shadow of doubt looking non-payment full in the face.

Judgment and enforcement

At this point, the next step, should you wish to pursue the matter, is to issue a claim with a view to obtaining a judgment. If the case is complex, for a large sum and/or disputed, we would suggest instructing a solicitor to handle the matter for you.

If, after judgment, payment is still not forthcoming, then then final step is enforcement. We would recommend transferring the judgment to the High Court for enforcement by a High Court Enforcement Officer (HCEO), as they work longer hours than County Court bailiffs, can generally attend more quickly (once notice has been served) and are paid on results, so tend to recover more.

You can read more about using an HCEO in our free Guide to Enforcement eBook.

David Carter

David is the former CEO of The Sheriffs Office.

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