Figures published by the government show that most big companies take more than the recommended 30-day period to pay their bills and some regularly exceed three months. SMEs are owed around £14 billion by their bigger customers, the data shows.
For the small business waiting for the cash to arrive, it can mean reliance on personal cash, loans and credit cards just to pay the staff and even keep trading – and it has a knock-on effect on their own suppliers who may also be left waiting to be paid.
It bears out our own experience: companies are taking longer to pay and more excuses are being proffered. Smaller companies, anxious not to rock the boat for fear of losing future business, are often reluctant to speak up.
When we’re acting on behalf of creditors, our approach has always been to seek a practical solution, rather than weigh in with threats of legal action from the start.
We aim to talk to the debtor company to find out what is preventing them from paying and if there’s anything we can do to help. We also try to find out who else they owe money to, is anyone threatening court action and or are there other creditors who may be threatening to push them under in order to keep trading. We can also ask whether short-term funding of some kind would help.
From our client’s point of view, what we also need to establish is whether the debtor company can keep trading on a pro forma basis. It’s informal arbitration, rather than formal letters and emails warning of legal action.
We recently acted for one client who were suppliers to a company which did a lot of online sales and was hit by a massive credit card fraud of around £80,000. That affected their cashflow and threatened to lead to them being wound up.
After our mediation, they agreed to weekly payments of £950 to pay off their outstanding bills to our client.
In another case, a client was owed £3,000 by a big Nottingham company who were refusing to pay. We were about to issue a winding up notice but managed, finally, to strike an agreement whereby they would pay a monthly sum until the debt was paid off.
It’s very much a pragmatic approach which gets results: our clients get their money and the debtor company continues trading.
Court action may seem a good option but it’s very much a last resort.Because, after all, once you have played that final ace you have to go through with it as you have nowhere else to go.