Heads above the parapet:

Heads above the parapet:

Dealing with late payments shouldn’t make or break a small business, now help is at hand via our free service!

It can be difficult for any business dealing with late payments and the impact this can have; worrying whether or not they’ll get the money through in time to pay staff’, or even their own suppliers. So, it’s incredible to believe that so many companies facing such problems are reluctant to do anything about it, preferring simply to grin and bear it.

The collapse of Carillion plc in January this year should be a lesson to all. The company left much of its supply chain unpaid – many small businesses - and is a costly example of how small business is often at the back of the queue when it comes to getting paid.

Based in Birmingham, the office of the Small Business Commissioner was launched in December 2017 to ensure fair payment practices for Britain's 5.7 million small businesses and support them in resolving their payment disputes with larger companies. Established under the Enterprise Act 2016 the SBC is headed by the Small Business Commissioner, Paul Uppal and is part of a package of measures to tackle late payment practices between businesses across England, Scotland, Wales and Northern Ireland.

It is now estimated that around a third of payments to small businesses are late with the average value of each payment at £6,142 and it is currently estimated that some £14 billion is owed to small businesses. This has led to 20% of small businesses running into cash flow problems due to late payments, resulting in some joining the 50,000 business deaths that occur in the UK every year. Furthermore, if the late payments due to them were paid on time, it could potentially deliver a £2.5 billion annual boost to the economy.

Commenting on nature of the challenge Small Business Commissioner, Paul Uppal said: “Successful businesses are built on integrity, entrepreneurial spirit and trusting relationships and I want to highlight that Britain can be the best place for new entrepreneurs to establish and grow their own business. However, late payments put their health at serious risk and in turn affect not only the livelihoods but the wellbeing of entrepreneurs and their employees alike.”

Since its launch the SBC has gained insight and intelligence on the unethical practices of larger businesses imposing invoice discounting in order to receive prompt payment. Paul Uppal continued:  “I wonder how a typically employed person would feel if they received their salaried pay cheque only to find it had been discounted by five, ten or even twenty per cent, just because their employer had paid them on time?” and added: “They would still have their own monthly outgoings to meet – mortgage or rent, utility bills, food, clothing and travel costs – like any small business!”

The SBC works closely with trades bodies, federations, business groups and their representatives, local authorities and national government to support small businesses who are experiencing difficulties being paid.  Mr Uppal said: “Through my role I aim to give small businesses the support they deserve, in particular to ensure fair payment practices, which are essential in helping them to thrive.”

For further help and information visit our website www.smallbusinesscommissioner.gov.uk

How the new Pre-Action Protocol for Debt Claims effects Small Businesses

As a small business, cash-flow is extremely important to the daily functioning and long-term health of the business. We have all seen the consequences of late payment on our businesses.

Unfortunately, the Government has introduced a new Pre-Action Protocol for Debt Claims. A Pre-Action Protocol is a set of guidelines which you are required to do before you take a matter to Court. If you do not carry out these steps, the Judge may order you to pay the Debtors costs or put the case on hold until you comply with the Protocol. This can have a damaging effect as it further delays the payment you are waiting for and increases the costs.

Before the Pre-Action Protocol for Debt Claims

Prior to the Protocol, if you had not been paid by the Debtor, all you had to do was follow the contractual agreement i.e. if the contract said you would be paid in 60 days or the matter would be referred to an Arbitrator etc. If payment was still not made you could issue a formal letter before claim requiring payment within 21 days. If this letter before claim was unsuccessful you could then issue Court proceedings for an order for payment. Simple enough!

After the Pre-Action Protocol for Debt Claims

The Protocol came into force on the 1^st October 2017. The Protocol applies to Business Creditors who are seeking payment from sole traders or individuals.

Under the new Protocol a letter before claim must still be issued, although this must now be more detailed. The Debtor then has 30 days to reply. The Debtor can now also ask for additional time to respond if they are seeking legal advice. There is a set form within the Protocol which the Debtor must complete and return. Once you have this form from the Debtor, you will have to wait a further 30 days before you can enter Court Proceedings.

You are now also under a positive obligation to take steps to settle the matter without Court Proceedings, by using methods such as mediation. If an agreement cannot be reached then you must give the Debtor 14 days notice that you are issuing Court Proceedings against them. Taking the total up to at least 64 days before you can take any action.

The downside of the new Protocol on Small Businesses

The effect of the new Protocol is that small businesses now have to wait at least 11 weeks more before they can take matters to Court. Due to the additional work involved i.e. mediation and the expertise required to draft the letter before claim, the costs have now also increased. The Protocol also seems to favour the Debtor. A well-informed Debtor can now continue to delay matters more than ever before.

How to minimise the damage?

The best way of dealing with these changes is to ensure you have an effective system in place for monitoring late payments. The sooner these are addressed, the sooner legal action can be taken if necessary.

It is also wise to ensure you speak to a Solicitor who can draft a set template letter before claim for you. This will ensure that you are able to take the initial steps yourself fairly quickly. It also means that when you refer the matter back to your Solicitor, they simply have to issue the 14 day notice to the Debtor and then start Court Proceedings. As always, staying one step ahead of the Debtor is key!

For further information or assistance please do not hesitate to contact Ms Annam Nasir, Head of Civil Litigation at Baches Solicitors on 0121 553 3286 or annam.nasir@baches.co.uk.