Small businesses turn to law to tackle late payment

A rising number of businesses are turning to the legal system in order to get invoices paid.

This is according to new research from debt recovery solicitors Lovetts, which found that legal claims relating to unpaid invoices rose by 17 per cent during the third quarter, when compared with the previous three months.

Meanwhile the average claim size fell by 15 per cent, suggesting that firms are being encouraged to pursue smaller sums through the courts rather than letting them go.

Charles Wilson, Lovetts managing director, says the figures reflect the changing economic climate. “As economic recovery continues to falter, we’re seeing more businesses taking a harder line on late payment to protect themselves from the risk of bad debt.

“There are many headlines about late payment being the biggest risk facing small businesses, and that message certainly seems to be spurring firms on to exercise their legal rights much more than before.”

Do I need to take legal action?

Late payment remains the scourge of small businesses. For many firms, an overdue invoice can mean the difference between survival and collapse – and it is therefore vital that you take steps to mitigate the risk.

Legal action is a useful weapon in your arsenal, but it is important to remember that it is generally considered to be amongst the last resorts in the fight against late payment. It is, of course, much better never to get to the stage at which legal action becomes necessary, by instituting practices that will help you tackle the problem at an earlier stage.

• Make your payment terms clear
Ensure that your payment terms are displayed promptly on all invoices, and that they are communicated to your clients at the outset. This can help to avoid situations in which payment is late through a simple lack of information.
• Chase up promptly
It is vital that you chase invoices as soon as they become due. Often, a simple nudge is all that is needed – but you should be prepared to take further action in the event that payment is still not made.
• Consider credit checking
Finally, you should remember that you are under no obligation to extend credit. When you choose to do so, your decision should be based on comprehensive information – information that credit referencing can help you gather. Consider credit checking your customers and clients before extending credit in order to identify potential risks before they become a problem.