SMEs are missing a trick by not looking for for late payment compensation

In 2010 just a quarter of claims handled by the firm included compensation, and whilst this has risen slowly over the years, from the start of 2013, 33 per cent of claims have included compensation.

While Lovetts welcomes the slight uplift, it believes that many SMEs are missing out on the opportunity to claim compensation because they haven’t laid down any firm ground rules at the outset of new business relationships. Lovetts is urging businesses to take a tough line on late payment and if necessary use the legislation already available to them.

To help avoid late payments affecting your business here is a 10 point plan to tackle the problem:

1. At the outset make sure the customer understands that legitimate costs, compensation and interest will be claimed if late payment occurs – get it in your Ts and Cs
2. Don’t be afraid, make sure they understand very clearly that this will form the basis of your trading relationship
Having done this:
3. Invoice and in the same month call or email to check the invoice has arrived with the right person to approve
4. Focus on the usual suspects
5. As soon as it becomes overdue, call the customer to remind them that Late Payment compensation and interest are due on each invoice – give them the cost they could incur if they don’t pay up
6. Make no bones about the fact these will be claimed if it goes to legal, then dangle a carrot and offer to waive compensation if immediate payment is made
7. If it helps, explain that compensation is to pay the costs of running a credit control team
8. If payment isn’t made, warn of the additional recovery and/or legal costs that will be due in addition to Late Payment compensation
9. Go legal when you say you will. If you don’t act on your threat your invoices will always remain at the bottom of the pile
10. Act decisively and it will change your business culture and your customer relationships while reducing late payment for your business

Charles Wilson, CEO of Lovetts said: “New late payment regulation was introduced in March but based on the poor use of existing legislation, I have very little faith in the EU directive making any impact on late payment practices. It comes down to business relationships and ensuring that in the early stages SMEs make clear that they won’t stand for any delays and will claim costs if necessary.

With suggestions that the economy is starting to pick up, we would urge the small and medium sized firms to tackle the issue of payment upfront as new customers come on board. Don’t let it become the elephant in the room.”