19th August 2011
Small firms are putting the pressure on and chasing overdue invoices more quickly than they were a year ago, new research has revealed.
According to debt-recovery law firm Lovetts, small businesses are issuing Letters Before Action (LBA) 33 days sooner than during the same period in 2010. LBAs are typically sent out in an attempt to secure payment before legal action is started to recover a debt.
The law firm said that the number of claims issued to recover payment had risen by 9 per cent, while the total value of claims had also increased by a quarter in the past year. Results were based on analysis of LBAs issued and claims made on behalf of Lovetts’ clients.
Charles Wilson, Lovetts’ chairman and managing director, said the findings echoed business behaviour last seen just before the 2008 banking crisis.
“At this time last year, there was clearly a reluctance to put too much pressure on customers to pay up, to keep relationships on an even keel as we came out of recession. However, this tolerance appears to have run its course.”
The research follows figures recently released by the Federation of Small Businesses (FSB), which revealed that 73 per cent of its members had suffered a late payment in the last 12 months. In the past year, 56 per cent had written off invoices worth up to £10,000 due to non-payment, according to the business group.
The FSB’s national chairman, John Walker, said “every penny counted” in the current climate, and just one late invoice could mean not being able to pay staff.
Businesses could take control of late payment, Walker said, by including payment times and penalties in contracts, and offering prompt payment discounts.
Asking for payment upfront or a deposit prior to starting work could also help minimise the risk of late payment, he added, while being prompt to issue an LBA often produced results.