How to deal with late payment

Plan ahead to alleviate cashflow problems.

Late payment is keenly felt by small print companies. To meet overheads, they often need to borrow or run overdrafts with concomitant interest charges. It means they can’t invest in new business opportunities, staffing or equipment and, of course, it can have a knock-on effect on how quickly they’re able to pay their suppliers. One firm going bankrupt can soon have a daisy chain effect – and if a truly large business fails or can’t pay, the ripples can spread far and wide.

The FSB says that the existence of this late payment culture is responsible for the failure of tens of thousands of small businesses a year, and many print service providers have gone to the wall because of delayed payment

The impact of late payments

It’s no secret that late payments are a real issue for all SMEs. While the number fluctuates from year to year, the UK Federation of Small Businesses (FSB) estimates that some £14bn in billing is currently overdue. It’s something that the print sector feels particularly acutely, with up-front costs crippling many a business when a client pays after the agreed terms or, even worse, doesn’t pay at all.

The FSB says that the existence of this late payment culture is responsible for the failure of tens of thousands of small businesses a year, and many PSPs have gone to the wall because of delayed payments. With printers keen to keep the presses running, non-payment can lead to a spiral of issues, with companies having to take on debts to keep afloat or accept jobs they’d otherwise steer clear of. 

Help may be at hand, however. In 2017, the government appointed a Small Business Commissioner to champion small businesses and, to coincide, launched an independent complaints scheme. The Office of the Small Business Commissioner website makes explicit that it was established largely to help with payment issues and to drive home the need for fair payment practice in both small and large businesses. 

While this is good news for the print industry and SMEs as a sector, it doesn’t mean that businesses sill shouldn’t have their own best practice in place for chasing late payment and, even better, doing their best to minimise the risks of late payment in the first place.

What small print companies can do

PSPs can actively try to head off late payments before they happen – and to chase them when they do. For example, it’s useful to have efficient systems for checking the creditworthiness of customers before working for them – credit checks and references are two ways of seeing if the client has previous when it comes to poor payment. 

“Background profiling on new customers and monitoring existing customers helps us to reduce the risk,” says Nicola Cummins, Business Development Director of Propack Direct Mail. “We always carry out credit checks on potential new customers, so we would not provide credit to any customer if we are not satisfied with those.”

On top of that, establishing clear payment terms and even agreeing that late payment will incur interest charges can motivate a customer to pay on time. It also means that if you start to add interest to a bill, they’ve had fair warning. If taking on a new client where you’ll have to buy paper to fulfil the job, agree terms for them to cover the cost of this upfront. 

Keeping on top

If a company’s invoicing process is automated, it needs to be set up to issue prompt reminders when accounts fall overdue and to create the trail of evidence that may be needed if you have to pursue payment through court. If you have the means, you can hire staff dedicated to invoicing and chasing payments or even outsource it to a third party.

The legislative environment isn’t perfect, but it’s much improved and there are codes and bodies you can call upon. The 2015 Prompt Payment Code has numerous signatories who agree to abide by certain payment rules, but it isn’t yet compulsory – something that some business leaders are pushing for. If you need to seek redress, then the Small Business Commissioner Complaints Scheme is useful, and an alternative to small claims court. 
 

Armed with a good plan and these resources you can put yourself in the best possible position to minimise late payments

Another useful resource for SME’s is the Pay On Time website. It explains relevant legislation, has a late payment interest calculator and useful standard templates for everything from invoices to reminders and other vital steps in debt recovery.

Armed with a good plan and these resources you can put yourself in the best possible position to minimise late payments. In the meantime, if the overdue billing amount falls significantly from that £14bn figure, it may be that the Small Business Commissioner office actually has some teeth.  

 

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Paper trail: how to chase an unpaid invoice

The personal touch

One of the keys to ensuring prompt payment is to have a good working relationship with your client. While many companies have grown accustomed to the ease of firing off an electronic invoice assuming it’ll be paid automatically, there are times when knowing the name and having the email or phone number of the person responsible for paying you is gold dust. Get on first-name terms and you can help make sure your invoice rises to the top of the pile. “We work with the customer to understand why payments are late in the first instance and work together to find a solution,” says Cummins.

Remind them of the contract

Some companies will stall payment saying they’re waiting to be paid. Remind them, gently at first, that they’ve contracted you to do work at agreed terms, and your payment shouldn’t be held hostage because of how they run their own business.

Gentle escalation

You should never start throwing threats around if a company is only slightly late paying you. It risks jeopardising a future relationship that could be mutually beneficial. But you can, of course, send them a payment reminder email. You need to create a paper trail that shows you took reasonable efforts to recover your debt, in case you need it in the future. 

Less gentle escalation

When payments get very late, or a customer persistently delays paying until you’re tearing your hair out, you can point to the Late Payments Act. This piece of legislation enshrines in law your right to interest for late payments, and also compensation for the costs you incur in recovering any debts. You might not want to use this for a repeat, mainstay customer who has good communication with you, but is vital for one-off recalcitrant clients and those who persistently fob you off. 

The last resort

If you’ve exhausted every avenue from reminders to gentle cajoling, you can take legal action. At this point, that paper trail you’ve generated is invaluable. You need to be able to show that the non-payer has violated agreed payment terms and also that you’ve repeatedly attempted to gain payment. Of course, the threat of legal action might just be enough to get the payment wheels greased – Cummins concurs: “We have taken legal steps with customers in the past to try and speed up payment by issuing court proceedings, but never actually got as far as that.”