What do SMEs fear most when acting on late payments? » SMEInsider

What do SMEs fear most when acting on late payments?

Fear of offending customers and reputation worries stop approximately 60 per cent of small business owners from claiming late payment compensation, according to a survey of credit professionals within SMEs.

 

SME’s fear a loss of reputation when taking action

Commission by Lovetts, a Surrey-based commercial litigation firm, over half (58 per cent) of the 149 credit professionals interviewed stated that the two factors mentioned above would stop them from acting on late payments.

This issue is affecting millions of SMEs nationwide, with Lovetts estimating that almost one in four businesses are being paid on average 1-2 months late, with just 22 per cent getting their bills paid within the terms of their arrangement.

In July, SME Insider brought to you a report from Bacs Payment Schemes which showed that UK small businesses are spending on average £10.8 billion a year in an attempt to recover overdue payments.

As part of the government’s Enterprise Bill, a small business commissioner will be appointed to help small firms reclaim late payments and get rid of the problem once and for all.

 

What else is stopping SMEs from reclaiming late payments?

You would think that the cost of retrieving overdue transactions is the biggest factor that stops small businesses from going after their money, however less than five per cent of those questioned were put off by the costs of late payment retrieval.

Around 20 per cent of the credit professionals said they can’t be bothered to follow up with their suppliers, while 18 per cent said the process would take up too much of their time. This means that just one fifth claim late payment compensation.

The fear of damaging their reputation as a business owner is a major fear for those involved in the survey. When asked about claiming late payment compensation from ex-customers, which businesses are able to do going back six years if their terms and conditions allow it, almost 60 per cent said they wouldn’t because it would affect their reputation.

Charles Wilson, chairman of Lovetts said that small business owners perception of claiming compensation is far removed from the reality of actually doing so, claiming that a loss of custom rarely ever happens when recovering late payments.

‘‘Many businesses live in fear of upsetting their customers by claiming what is rightfully theirs,’’ claimed Wilson.

‘‘A lot of this comes down to the terms and conditions which form the basis for the relationship – if it’s made clear from the outset that late payment compensation will be claimed if payments are overdue, then there’s no surprises and in fact, it can often incentivise customers to pay within terms to avoid the additional cost.’’

‘‘We would really urge credit professionals to reconsider this highly cautious attitude to help get a grip on the late payment culture that is so pervasive in the UK today,’’ continued the chairman.

  • It is a very tough situation for SMEs. Sadly, it is a very common issue. Another alternative is to look into invoice financing solution which will allow SMEs to obtain their cash upfront rather than waiting for the actual repayment