According to a new study by Xero Small Business Insights and Accenture, 94 per cent of small businesses experienced a “cashflow crunch” at least once during 2021.
The same study also showed that 23 per cent of small businesses experience cashflow concerns during at least six months of each year, with late payments and credit issues being the primary reasons.
Credit control is an essential part of the accounting process and ensures that debts are managed, and payments are made on time.
To help you improve and manage your payment control, we have put together a helpful set of FAQs.
When does a payment become late?
Unfortunately, there isn’t a single answer to this question. However, during business-to-business transactions the rules relating to late payments are set out by the Late Payment of Commercial Debts (Interest) Act 1998 and its various amendments.
The period for payment is usually incorporated into a contract or in the acceptance of a company’s standard terms and conditions of trade. These can set various lengths within which payment can be made and should be agreed prior to any transaction.
If a payment date is not agreed upon then, by law, the payment becomes late 30 days after either the invoice is received by the customer or 30 days after the goods or services are delivered.
Can I add late payment charges to outstanding payments?
Where payment has not been received within these or the contractually agreed timescales, then late payment fees can be applied which differ depending on the scale of the debt.
You can also claim for reasonable costs from the debtor each time you try to recover the debt and these costs can be charged for each invoice that is outstanding.
Can I take further action if payments are not paid?
Where a payment remains unpaid, you must send a second reminder at 14 days overdue. This should be strongly worded and reiterate your terms and the consequences of not paying within seven days of the letter.
Where a debt remains unpaid you can:
- Cancel a customer’s credit account
- Issue a negative credit reporting
- Stop supply or service
- Take court action
- Transfer the debt to a collection agency
In some circumstances, it may be suitable to mention that late payment could affect their credit rating.
Struggling with late payments? Act now by contacting our specialist accounting team at enquiries@stca.co.uk or 01494 552 100 or your usual Seymour Taylor representative today for assistance.
This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing on 08 August 2022.