Even before Covid-19, small businesses often struggled to get paid on time. Today, it is more difficult than ever, and it could get worse as businesses decide to hang on to their cash in their own struggle for survival. So what can you do about it?
This crisis has highlighted the critical importance of ‘knowing your customer’ – from understanding the sector, the supply chain and the industry they work in, to the correct processes and procedures to follow to get paid.
The priority is to make a serious effort to collect all invoices. Chasing them up can be hard enough in normal circumstances, especially if it isn’t your usual skillset. But for your own survival you need to focus on it now.
As an action point, review all processes and make sure your invoices and statements are being directed to the right place and the right person. Remember, your contacts are likely to be working from home, or they may even have been furloughed, so your invoices might now have to be sent elsewhere.
‘KYC’ is also about the need for the ‘softer’ credit management skills; the CICM advises that you should identify whether or not your customer is vulnerable as this could have an impact on their ability to pay.
There is plenty of help and advice out there, but you need to know where to look. The Chartered Institute of Credit Management recently published a practical checklist for managing cash in a crisis.
If you’ve followed best practice, your payment is not in dispute, the terms are agreed, the goods have been delivered, and there is no reason you should not be paid, then you can complain directly to the Small Business Commissioner (SBC).
The SBC is an independent body, appointed by the government, and can make non-binding recommendations on how the parties should resolve the dispute around unpaid invoices.
Depending on the size of the business you are dealing with, they may be a signatory to the Prompt Payment Code (PPC). The PPC is now managed by the Commissioner’s office, so again you have another channel for demonstrating your right to be paid.
You can also seek advice through free government backed helplines, and you can access free local business help from your nearest Local Enterprise Partnership growth hub in England, the Business Gateway office in Scotland, if you are in Wales there are Business Wales Regional Centres, and Invest Northern Ireland has Regional offices.
Coming back to an unpaid debt: under the Late Payment of Commercial Debts (Interest) Act 1998 you can charge a statutory interest – which is 8 per cent plus the Bank of England base rate – plus a reasonable cost for recovering debts for business-to-business transactions.
You will need to send a new invoice if you decide to add interest to the money you’re owed. Of course, this still doesn’t guarantee that you are any more likely to get your invoice paid, but it’s a legal right and you should exercise it.
If you’ve followed best practice, you’ve identified whether your customer is vulnerable, considered appropriate forbearance, but there is no clear reason why the customer is not paying or not even engaging with you, then you have two principal options open to you.
There is litigation, which you can action yourself or by using a solicitor; or to call in the services of a professional third-party debt collection agency, and specifically one that is a member of the Credit Services Association.
Many smaller suppliers are understandably reluctant to take any action that might jeopardise a future relationship – especially at the moment in such unprecedented times – but engaging with a CSA member will soon put you at ease that your business is in safe hands.
Debt collection agencies that are members of the CSA act on behalf of nearly all major financial institutions, banks, credit card companies and the Government. But its members also manage more than 750,000 commercial accounts, mostly on behalf of small businesses.
The key focus is on achieving successful outcomes, to secure payments where payments are possible, and provide help and support where such support is needed
Collectively, they recover more than £400 million every year – money that is in turn critical to help the small business sector prosper and grow.
If you are using a member of the CSA you will know that they are not only following the CSA’s strict Code of Practice but also following responsible guidance on how to collect debt during this difficult time. You can be assured that your customer will be treated fairly and shown the appropriate forbearance.
Debt collection agents are trained to be empathetic and flexible, taking into consideration the customer’s circumstances so that they can easily adapt to give them the appropriate periods of breathing space or negotiate more time to pay or a settlement, and signpost them to money advice charities.
They will quickly uncover, for example, whether a customer is not paying because they have had to furlough their staff, and are waiting receipt of a government loan, in which case the issue is one of timing. Alternatively, they will assess if there are no good reasons for why a debt hasn’t been settled and negotiate an appropriate arrangement to their client’s satisfaction.
The key focus is on achieving successful outcomes, to secure payments where payments are possible, and provide help and support where such support is clearly needed.
The general advice for when an invoice is overdue and has gone past term is to not wait. Whilst new revenue might be harder to find right now it is important to make sure that the hard work you’ve already put into your business is paid for.
So don’t risk being at the back of the payment queue by ignoring unpaid debts and use a professional to manage the debt collection process if you need to so that you can be concentrating on your business and navigating the world that we are now operating in.