Cash flow is a top priority for any business but it is all too often hampered by a widespread late payment culture in the UK. Whilst various measures have been introduced in recent years aimed at changing payment practices, such as the Late Payment of Commercial Debts (Interest) Act 1998, the Prompt Payment Code, the Payment Practices Reporting Regulations 2017 and the Small Business Commissioner, SME's continue to be disproportionately affected by this issue. The high profile collapse of Carillion earlier this year demonstrated the negative knock-on impact that poor payment practices can have on small businesses. The UK government has recently launched a call for evidence asking businesses of all sizes to give feedback on the best ways company boards can put in place responsible payment practices through the supply chain. The consultation can be viewed here and is open for response until 29 November 2018.

Some headline statistics

Despite the measures government has introduced in an effort to tackle late payment, some of the headline statistics set out in the call for evidence document make for interesting reading :-

  • The average time large businesses take to pay an invoice is approximately 37 days from date of receipt
  • Late payment is considered a problem for 55% of UK SME employers offering trade credit (this equates to 27% of all SME employers)
  • More than half of SME's experience late payment waits one month or longer beyond agreed terms, with a fifth waiting longer than two months
  • 32% of SME's reported that late payment causes them to delay paying their own suppliers with 25% having to rely on a bank overdraft and 15% indicating it causes them to struggle to pay staff and business bills
  • 24% of UK businesses report that late payments are a threat to their survival. This is the highest reported level among all European countries

The call for evidence is an opportunity for all UK businesses to provide their input and suggestions as to what more the government can do to create a responsible payment culture to ensure all UK businesses are on a level playing field. Feedback is encouraged on the current experiences of businesses in their payment practices, the impact of existing measures to improve payment practices, what more can be done to further refine measures and promote good practice and whether new measures should be introduced to further encourage a responsible payment culture. This is your opportunity to influence the shape of future measures.

What can UK businesses do meantime?

It is likely to be some time before the results of the consultation are known and whether, and to what extent, any additional measures put in place as a result will be sufficient to create a truly responsible payment culture. In the meantime, whilst most of these suggestions should be obvious it is a good time for businesses to take stock and revisit some of the steps they can take to protect their position as far as possible:-

  • Carry out comprehensive due diligence checks on new customers and regularly review the payment behaviour of existing customers. Is a customer who doesn't pay worth having?
  • Consider credit reference checks on new customers and also checks to review the viability of existing customers
  • Ensure your terms of trade are clear and robust
  • Consider requesting payment up front. In the modern world of internet trading this might not be met with as much resistance as you think!
  • It should go without saying, but issue invoices promptly and at the earliest opportunity
  • Don't be afraid to ask for payment and to issue pro-active payment reminders
  • If all else fails then a referral to a collections management and/or litigation provider can often produce a positive result or flush out any true disputes

The harsh reality is that the more overdue an invoice becomes the more difficult it can be to secure payment. The old adage of "whoever shouts loudest" is often used in debt collection and businesses would be well advised to keep this is in mind.

How can Brodies help?

Brodies has a dedicated debt and asset recovery team providing a comprehensive collections management service complimented with debt recovery litigation services where necessary. We are focused on effecting all recoveries as quickly as possible in order to maximise financial recovery for our clients. Our clients include banks, financial institutions, debt collection agencies, debt purchasers and utility companies as wells as clients in the real estate, construction and service sectors. We can also draft or review contractual terms of trade to ensure your terms and conditions are as robust as possible in the market place.


Marianne Griffin

Legal Director