I've just just read about the plight of Neil Skinner the owner of a building company called Johnson Bros Ltd in Oldham. He's owed in the region of £145,000 by the collapsed construction company Carillion and now has a struggle on his hands as he attempts to rebuild his business.
I was saddened to read that he had up to 40 unpaid invoices, some of which are over a year old. Legislation is in place which in theory should prevent this kind of thing from happening. The most recent piece of legislation I'm aware of is The Late Payment of Commercial Debts Regulations 2013 introduced on the 16th March 2013. This states that If no payment terms are agreed between both parties, the default period is 30 days. However payment terms must not exceed 60 days unless both parties agree and the extension is not grossly unfair. If your customer fails to pay on time you are entitled to claim interest and debt recovery costs from your customer. The reality is you'd probably only want to do this as a last resort if you wanted to retain a good customer (then again are they good if they don't pay their bills on time?). You have the options of recovering the funds and claiming the debt recovery costs and interest yourself. Or you can pass the matter on to a debt recovery business who will attempt recover the outstanding amount for you and claim there expenses from debtor.
I'm a supporter of pay on time website www.payontime.co.uk where you will find a raft of information about late payment legislation and good advise about debt recovery. Of course if every business paid their bills promptly there wouldn't be a need for this website in the first place. The irony is that many of the slowest payers can often (but not exclusively) be big businesses who offer short or no payment terms to their own customers yet expect suppliers to offer long payment terms. In effect they use suppliers as unoffical lenders. If the business at the top of the chain goes into liquidation and can't pay it's debts this can turn into a domino effect resulting in the next business being unable to pay it's suppliers and so on.
In times gone by I think it could have been seen as acceptable that it might take a business 60/90 days to turn around payment of an invoice. The bill usually had to be sent in the post, go through a paper based system upon receipt, then a cheque issued and posted back to the supplier. However in the modern era invoices and supporting documents can be sent in moments electronically. Most business store purchase orders electronically, and I believe almost every bank now offers "faster payments" which take around two hours for funds to move between accounts so we should be seeing a faster turnaround when it comes to paying bills.
Neil won't be the last person whos business is affected by this type of issue, it's been happening for years and sadly until businesses stop allowing their clients from running up big debts in the first place I can't see a way to prevent it happening again.
Please feel free to add your comments.