Small- to mid-size business owners understand that late payments will in all likelihood lead to debt. So why would an organization postpone updating a system that ensures timely invoices? One UK-based law firm discovered that 80 percent of businesses failed to update their terms and conditions, which was required by the nation’s late payment regulations that came into effect last year. How exactly is this hindering companies and what do the regulations entail?
Why would an organization not update its invoicing system, especially if its home country recently launched late payment regulations? According to one UK law firm, the answer is extremely simple: businesses are busy. But what happens when these UK firms postpone tending to their invoices?
Lovetts PLC recently published the results of a survey that found that only 32 percent of businesses claimed legal recovery costs and compensation on late payments “as a matter of course,” even though the ability to do so was put into law as part of the nation adopting an EU directive. Moreover, the Lovetts survey showed that the total number of debts its clients had on their books increased by 27 percent on the previous quarter, when compared to Q1 2014.
Lovetts surveyed more than 100 firms and found that 8 out of 10 firms have not updated their terms and conditions. This made it impossible for them to be compliant with the late payment regulations.
“Our survey suggests businesses are missing a major opportunity to claim compensation and reasonable costs on overdue invoices – effectively making the debt recovery free,” Lovetts CEO Charles Wilson told Supply Management. “Of course, what businesses may fear is that legal costs could spiral given the huge increase in court fees earlier this year, but if they implement the new regulations, many businesses could actually find most of their legal costs are covered.”
The EU’s Late Payment Directive aims to strengthen companies’ rights to prompt payment, according to the organization’s website. One provision included in the directive is that businesses are automatically entitled to claim interest for late payment. Moreover, they can obtain a minimum fixed amount of €40 ($53.28) as a compensation for recovery costs.
Additionally, companies have to pay their invoices within 60 days, unless they have made other arrangements and as long as it is not highly unfair.
EU governments were required to bring their national laws inline with the directive by March 2013.
Wilson said in a company statement that it’s essential for organizations to take control of these debts as the UK economy recovers with robust credit control policies and late payment tools such as a Letter Before Action or Late Payment Demand. It will prove that they “mean business when it comes to chasing debt,” Wilson said.
This is just the most recent instance of SMEs facing debt issues. PYMNTs.com previously reported on Ireland’s SMEs encountering similar issues. Many firms’ debt loads are falling, but many SMEs in Ireland aren’t investing in new projects. Instead, those companies are paying down their debts and that is having an impact on the economy overall, including new-job creation and purchasing for new projects.
Additionally, business-software group Sage Ireland reported that 59 percent of businesses in that country said invoices paid by check were late. Of those, 21 percent were more than a month overdue. Furthermore, the default rate among Ireland’s approximately 300,000 SME accounts was 26 percent at the end of 2013 when measured by the number of loans, and 41 percent when weighted by loan balance.
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