More than half of Britain’s SMEs (52% in total) were owed an estimated total of £44.6 billion in late payments by the end of 2016, according to recent industry research*. That averages out to roughly £16,000 per SME; however, 1 in 10 were owed more than £100,000.
This massive financial delay has been detrimental for affected SMEs, with 65 per cent of them agreeing that late payments force them to shut down. In response, half of all small business owners want the government to intervene and help SMEs overcome these circumstances.
However, your organisation may not be able to wait too long for the government to intervene. For that reason, here are some best practices for handling late payments:
- Complete a credit check. Before you agree to conduct business with a client, you should run a credit check to see whether they may pose a risk.
- Ensure you have a signed contract in place before carrying out any agreed work
- Make your payment terms clear. Clearly outline your payment terms, which should include the specific amount due, the date the payment is due and the consequences of not paying on time.
- Offer incentives for early payment. Consider offering a percentage discount on invoices that are settled before the due date.
- Add interest to late payments. If clients do not pay you on time, add interest to what they owe. However, you should only add interest if it has been explained in your payment terms.
- Remind clients of pending due dates. Be sure to contact your clients several months before their due date. If they ignore your notices, remind them if they do not pay on time, they will accrue interest. If you chase payments via email, it is a good idea to also send a letter to back that up in case the email “gets lost”.
- Suggest an installment plan. If your clients cannot pay what they owe in a lump sum, you may want to suggest an installment plan.
- If all else fails, seek legal advice. You may be able to pursue a claim in the Small Claims Court. It is worth getting some advice and checking your position. Some insurance policies also include access to free legal advice.
- Check your insurance. With professional indemnity insurance you may find you are insured for non-payment of invoices.
As always, our commercial insurance experts will be happy to advise you if you’re concerned about these issues. Give your local branch a call today.
* Source: Zurich SME Risk Index