The Financial Times recently reported on the burden of late payment [1] borne by small businesses. The article refers to data published by Bacs Payment Schemes, the direct debit company. BPS estimates the debt burden on SMEs is £39.4bn, up from £30bn in 2013 and higher than a previous peak of £37bn in 2012.
- The research established that 60 % of SMEs are experiencing late payments, with the average company waiting for £38,186 in overdue payments.
- 72% of companies in the manufacturing sector were affected by overdue payments, followed by those in services (63%) and the transport, retail and distribution sector (48%).
- Businesses are incurring additional costs of £9.16bn a year because of late payments, with almost a third saying they were spending around £500 a month as a consequence of money owed to them. This figure could be as high as £10,000 a month as a result of the various costs associated with bad debts, including overdraft fees and administrative costs.
- One in four companies is spending more than 10 hours a week chasing late payments.
- The knock-on effect of late payments meant that a quarter of companies were being forced to pay their own suppliers late, with one in five saying late payments are forcing them to rely on bank overdrafts.
Mike Cherry, national policy chairman at the Federation of Small Businesses, said: “These latest figures are a further reminder of the major headache caused by late payments. Not paying on time and lengthy terms can have a seriously detrimental impact on small firms”.
ARAG [2] can help
- Our Essential Business Legal and Absolute Business Legal policies offer Contract and Debt Recovery as an optional cover. Provided that there is a reasonable chance of obtaining and enforcing a judgment the policy pays legal costs and expenses up to £100,000 to pursue recovery.
- Whether or not policyholders have Contract and Debt Recovery in force they can contact our 24/7 legal advice helpline for advice about their legal rights.
- The ARAG legal services website provides an on-line law directory and a range of on-line legal documents which registered users can create for free. [3]www.araglegal.co.uk [4]Policyholders who are new to the site can watch a two minute site video from the home page. They will need to enter their voucher code to register to create their own user ID and password. This is very simple and once it has been done policyholders can select documents from a menu and watch their document take shape as they build it on line by responding to on screen prompts. Guidance note accompany all documents.
- A solicitor review service is available for some documents which are subject to a fee.
More about on-line legal documents
Policyholders can manage debt problems before they escalate by using our on-line legal documents. On-line documents can be created in minutes and stored securely on-line.
The debt recovery pack contains a suite of letters, or individual items can be selected, including;
- Acknowledgement of a debt
- Guarantee for the payment of a debt (where the creditor has commenced legal proceedings against the debtor)
- A reminder letter for an unpaid invoice
- Debt collection letters for unpaid invoices – an initial demand letter requiring payment for an overdue invoice, and a second letter to be used as letter before action if there is no response to the first letter.
- County court claim forms for debt recovery (Note – where debt recovery cover is operative policyholders can claim under their policy and we will take of this for them).
- Assignment of a debt.
Businesses can save significant additional costs and time as well as avoiding the knock on effects of late payments. If you sell Essential or Absolute Legal Solutions make sure your clients have their voucher code and get them to register straight away.
If you would like details of our commercial products please call us on 0117 3072278.