Introduction
At Clear Commercials, we understand that maintaining control over your business is paramount. However, the issue of late payments and unpaid debt can be a source of immense frustration, potentially affecting your financial stability. While you may not have the power to compel your commercial clients to pay promptly, there are avenues available to regain control. In this article, we will explore the prevalence of unpaid invoices, the impact of late payments in commercial transactions, and provide strategies and expert advice to navigate this challenging landscape.
Understanding the Prevalence of Unpaid Invoices
Unpaid invoices are a common issue that businesses, including Clear Commercials, often face. Recent surveys reveal the extent of this challenge:
- A survey conducted in the UK reported that over half (55%) of small and medium-sized business managers anticipate delayed payments during the 2022-2023 financial year. This finding aligns with the Federation of Small Businesses (FSB), which reported that 52% of small businesses experienced delayed invoice payments.
- Another survey conducted in 2021 found that a staggering 94% of businesses with 50-249 employees had outstanding invoices. Late payments have far-reaching consequences, affecting various aspects of business operations, from delayed employee payments to potential order cancellations and even defaults on bank loans.
Navigating the Challenge of Late Payments in Commercial Transactions
The problem of late payments can become so pervasive that it seems to be an accepted norm. However, as a business awaiting payment, it becomes increasingly challenging to meet your financial obligations, perpetuating a vicious cycle. The impact of late payments is severe, with approximately 50,000 businesses shutting down annually in the UK due to this issue.
Factors such as soaring energy prices, increased borrowing costs, and cost-conscious consumers further exacerbate financial pressures. Borrowing additional funds often becomes the only solution for many businesses. In 2022, small businesses with worsening payment delays sought credit more frequently than those receiving timely payments (17% compared to 9%). However, there is a limit to how much a business can borrow, and relying on unpaid bills is unsustainable.
Late payments have become so pervasive that the government has initiated a review to investigate poor practices, dispute resolution mechanisms, and the potential role of banks and technology solutions in addressing the issue. Regrettably, the FSB’s latest report is critical of these processes, deeming them slow and ineffective.
In the interim, let’s explore strategies to prevent and resolve these challenges.
The Late Payment of Commercial Debts (Interest) Act 1998: Empowering Clear Commercials
Legal protections have been enhanced to enable businesses of all sizes, including Clear Commercials, to collect interest on overdue debts. The interest rate is set at 8% above the base rate and is applicable from the day following the final payment date. This protection extends to nearly all sales of goods and services between businesses, providing substantial coverage.
In addition to interest on the debt itself, businesses are entitled to seek compensation for the costs associated with debt collection. For example, Clear Commercials may engage a debt collection agency to pursue outstanding payments on our behalf. While the compensation amounts are fixed and relatively modest, they serve as a deterrent against late payments and are in addition to, not in place of, interest charges. The compensation amounts are as follows:
- £40 for debts under £1,000
- £70 for debts ranging from £1,000 to £10,000
- £100 for debts exceeding £10,000
Clear Commercials should also be aware that we can potentially claim back further debt recovery expenses by maintaining records of all costs related to this process.
Expert Advice on Handling Business Debt in 2023
To address the complex issue of late payments and unpaid invoices, Clear Commercials can benefit from expert advice. Let’s delve into strategies and insights provided by industry experts:
60 Seconds with Fintech Leader Andrea Varga
Tip One: Clarify Your Invoicing Clear Commercials should prioritize setting up an efficient invoicing process that minimizes potential confusion and disputes. Providing accurate, detailed invoices with clear payment terms reduces misunderstandings and delays.
Andrea Varga, Head of Innovation at financial software firm Aryza, recommends enhancing clarity by offering multiple payment methods and communicating them clearly in our invoices.
Tip Two: Proactively Seek Solutions Taking a proactive and strategic approach to unpaid debt is essential. Clear Commercials should consider a multifaceted strategy that includes clearly communicating payment terms to debtors and seeking external assistance when necessary.
Varga suggests engaging legal or financial professionals specializing in debt collection and insolvency matters to navigate the complexities of the legal framework. Exploring alternative dispute resolution methods, such as mediation or arbitration, can also help preserve vital business relationships.
Tip Three: Be Open with Lenders Clear Commercials should maintain open lines of communication with creditors, demonstrating transparency and honesty about our financial situation. This approach can lead to mutually beneficial solutions, including renegotiating payment terms or devising manageable repayment plans.
Honesty with investors, including banks and financial institutions, is fundamental to building goodwill and averting more serious consequences.
60 Seconds with Debt Mediation Expert Mike Smith
Tip One: Consider a Time to Pay (TTP) Arrangement with HMRC If Clear Commercials’ debt includes unpaid taxes, we may be eligible for a Time to Pay (TTP) arrangement with HM Revenue & Customs (HMRC). This arrangement allows businesses facing short-term financial challenges to extend their tax payments over a longer period.
Tip Two: Explore Invoice Finance Solutions Clear Commercials can explore financial services that enable us to sell unpaid invoices to third-party finance companies in exchange for a percentage of their value. This can enhance cash flow and shift the responsibility of collecting unpaid invoices to the finance company.
Tip Three: Seek Professional Guidance Engaging professional debt advisors or business finance advisors can provide valuable insights into the best solutions available. Clear Commercials should consider options like Company Voluntary Arrangements (CVAs) for managing corporate debt. CVAs allow businesses with debt issues to reach voluntary agreements with their creditors regarding debt repayment.
Tip Four: Know Your Rights Against Bailiffs Clear Commercials should familiarize ourselves with the procedures and rights concerning bailiffs (now often referred to as enforcement agents) to protect our interests. Bailiffs must provide advance notice before their visit, and specific regulations govern their entry into properties.
In the UK, individuals cannot be imprisoned for owing money to creditors (excluding fines, council tax, or court-related penalties). Clear Commercials should be aware of these procedures and report any breaches of protocol.