Debt Recovery Blog – Businesses are losing out on late payment interest

Businesses struggling with poor cash flow due to late payers are missing a major opportunity to claim late payment interest according to a number of the UK’s law firms.

According to a number of press reports, various UK law firms have found that in the past year approximately one in three claims issued included late payment interest. Although this may seem high, and whilst the number of claims that include late payment interest has slowly increased on an annual basis, late payment legislation is still very undersubscribed resulting in many businesses simply not recovering the compensation they are entitled to.

The reluctance to seek recourse through late payment legislation may attributed to many factors, not least the delicate balancing act of maintaining good customer  relationships while being firm enough about payment terms and the onset of late payments. With late payments accounting for some £24bn to small businesses it is obvious that the lag in costs of sales versus payments being realised being so substantial, that the economy is woefully inefficient in this respect and furthermore, that there are a significant amounts of UK small businesses at risk of liquidation through protracted late payment issues which severely dampen cash flow.

As tough trading conditions continue, more businesses are being forced to reconsider their options but quite often than not, the best course of action is not simply to trade on regardless and look towards debt recovery to sort out the issue.

Whilst debt recovery can indeed recover late payments, more often than not, it will dampen the relationship with the customer and there is no guarantee off total success. The late payments could be the tip of the iceberg and once initiated, debt recovery could lead to some debtors going into liquidation as their prospects of continuing trade come under full scrutiny and acceptance of the inevitable more likely. That’s not to say debt recovery is ineffective. It is all about timing and damage limitation.

Rather than trade on regardless, by performing regular credit reports on all customers as part as a credit control management process, the risk of bad debt is significantly reduced, with customers only being given the credit lines that they are able to maintain. The flip side of reducing credit lines to customers that are suffering is that some customers may have improved credit worthiness which is also unknown to the supplying firm, and as such, a credit report can identify opportunities to increase the credit lines to these customers and maximise revenue and profit potential.

It stands to reason that if you offer the right amount of credit to each customer in the first place, you limit your exposure to bad debt as a result of mounting late payments and customer insolvency.  Debt recovery is just that, a recovery process, not a safety net and it shold be regarded as such in that it is but just one tool in the arsenal of tools that can be put in place to limit the onset of and damage caused by late payments, debts and bad debts from your debtors.

We can discuss our range of services from no-collection no fee Debt Recovery and Commercial Debt Recovery, Credit Reports to help you assign the right levels of credit to your customers or perhaps Outsourced Credit Control to put in place an Accounts Team for when you can’t afford an in-house one.

Whatever the service, as a North West Development Agency nominated ‘High Growth Business’ we have achieved some excellent results and made some real differences to our clients and the number of ongoing new clients wins backs up our claim.