Mastering the art of overdue payments

Late payments from big businesses can be a headache for small business owners. Learn how to take control and secure your financial future.

CREDIT: This is an edited version of an article that originally appeared on ICAEW

Dealers are often the small businesses who find themselves waiting endlessly for payments from larger corporations, and it can seriously impact our cash flow and ability to do business if it’s not managed properly. In this article, we delve into some strategies to combat overdue payments and ensure you receive the dues you rightfully deserve.

Understanding your rights and tools:

Contract clarity: Be prepared
To navigate the maze of late payments, start with a solid foundation. Understanding the contract terms, issuing timely invoices, and maintaining meticulous records are essential for small businesses to assert their rights against tardy payers.

Know your customer
While partnering with prominent names may seem enticing, consider scrutinising their payment history. Large companies are required by law to disclose their payment practices and policies, making it easier for you to gauge their reliability.

The prompt payment code
Enter the Prompt Payment Code, a voluntary initiative endorsed by the Small Business Commissioner. It provides a framework for fostering timely payments and allows companies to showcase their commitment to fair payment practices.

Outsourcing invoice processing (factoring)
Some businesses opt to factor their invoices, offering accounts receivable to third parties at a discount. Regulatory reforms in 2018 have made it easier for small businesses to leverage this method for better cash flow management.

Negotiation and mediation
Breaking down the importance of prompt payments to larger corporations can be challenging. Enter the Small Business Commissioner’s Office, a valuable resource for conflict resolution and support, even if your dispute falls beyond its jurisdiction.

Enforcing your rights
When disputes leave no room for negotiation, consider reaching out to the Small Business Commissioner before pursuing legal action. A court order for payment, though feasible, can be time-consuming and costly. Statutory interest and compensation options are also available.

Raising the stakes
For those seeking more decisive action, the Insolvency Act 1986 provides a potent tool. Small suppliers have the right to request statutory interest and compensation, adding considerable weight to overdue payment claims.

In the realm of small businesses versus corporate giants, late payments need not be a constant headache. Armed with these strategies and legal instruments, small business owners can navigate the complex landscape of overdue payments with confidence and assert their rights effectively.