Businesses acted quicker and tougher on overdue debts in 2011
As the Government launches a new initiative to tackle late payment to SMEs, figures from commercial debt recovery law firm, Lovetts, have revealed that during 2011, in the face of economic uncertainty, many businesses radically changed their attitude to debt and took decisive action to tackle late payment. Over the course of 2011, the time from invoice to the threat of legal action was slashed by 18.5 working days compared to the previous year. Late payers previously given the grace of around 100 days from invoice to threat of legal action are now facing a Letter Before Action (LBA) from Lovetts, 81.5 days on average from the date of invoice.
In addition to the reduction in time from invoice to LBA, Lovetts saw a rise of almost 17% (16.93%) in the size of the average debt being chased for payment. This rise was also reflected in the size of the average claim which rose almost 19% (18.63%). The findings suggest businesses were focusing their efforts on the biggest debts presenting the largest threat to cashflow.
Charles Wilson, Chairman and Managing Director of Lovetts says: “2011 marked a turning point for UK businesses. As costs rose, confidence slumped and the Eurozone crisis rumbled on, businesses have looked to shore up their defences and keep cashflow on an even keel. Certainly, many of the businesses we work with are taking a much tougher line on customers who pay late, implementing a robust policy of chasing debts for payments with the threat of legal action at a much earlier stage than we have ever seen before.
“The fact of the matter is that all businesses are looking to delay payment for as long as possible whilst putting on the pressure to be paid themselves. There’s no doubt, the customer who pays late is no longer king, they are a drain on cashflow.
“There are some key steps all businesses should take to protect themselves as we work through this difficult trading period. Checking out the credit history of a potential new customer is a good start, then stating quite clearly on your contract the terms of payment and policy for overdue payments. For example, making a legal claim for the amount overdue and any interest payable on top of this, plus the legal costs incurred through chasing up the overdue payment. Most importantly stick to your guns and enforce that policy. It’s all very well having strict terms in place, but if these are not followed through they will be ignored in future and the next invoice will go to the bottom of the pile.”