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Late payment risks

Article posted: 15th April 2019

Healthy cash flow is the life blood of any business. Did you know that 50,000 businesses cease trading every year due to late payments from their customers or clients?

In response to the astronomical number of small to medium sized businesses facing closure due to late payment, the Government launched the Office of the Small Business Commissioner (SBC) in December 2017.

Over the past 16 months, the SBC has supported smaller firms in taking on larger brands who delay payment. The Small Business Commissioner, Paul Uppal, appeared on BBC Breakfast recently to highlight poor supplier payment practices at Holland & Barrett, following the publication of his report into a late payment complaint made by a small business.

The overall remit for the Office of the SBC is to bring about a change and end the late payment culture which is a blight for many small and medium-sized businesses.

If you need help and advice in this area, then the SBC’s website has an array of tools and information to help. The website has its own Interest charge calculator and can help you to calculate a compensation charge for late payment. The website also hosts case studies and information on how to proceed with a complaint against a company.

Before you begin working for a customer or client, it’s essential to agree your contract terms. Make sure that the contract terms and conditions that you both sign up to will ensure as best you can that payment is made on time. Getting your initial agreement and terms and conditions right is as important an issue as late payments themselves.

It’s worth asking yourself the following questions, which are by no means exhaustive:

  1. How robust is your business if invoices are not paid on time?
  2. Do you maintain and monitor cash flow projections with key dates/pinch-points for income and expenses for your business?
  3. How close are you to your bank if cashflow becomes tight?
  4. Do you know all the contract terms and conditions you are signing up to?
  5. Do you have a verbal or a written agreement with your clients? Verbal agreements are harder to enforce because they rely mainly on good will.
  6. Are the conditions of the contract clearly defined and agreed to by all parties?
  7. Are there any sub-contracting arrangements?
  8. Is the duration or period of the contract clearly defined?
  9. Have you included a full description of the goods and/or services that your business will receive or provide, including key deliverables?
  10. Have you specified payment details and dates, including whether interest will be applied to late payments?
  11. Have you detailed any insurance and indemnity provisions required?
  12. Have you thought about renegotiation and/or renewal options?
  13. Have you put together a complaints and dispute resolution process?
  14. Are there termination conditions included?
  15. Are there any other special conditions that may be relevant to your business?

We always advise our clients to seek legal help because the terms and conditions of your contract will directly impact your cash flow, so be sure you know what you are signing up to or agreeing to before you begin to deliver goods or services.

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