Business secretary Vince Cable has suggested a ‘late payment levy’ to tackle the problem of businesses not paying their suppliers on time.
However, the boss of a leading debt collection agency has claimed the idea “won’t work”. Charles Wilson, CEO of Lovetts, conceded the plan was “well intentioned”, but claimed that Mr Cable had not paid much attention to similar previous ventures that have failed to correct the issue.
Mr Wilson said that suppliers would be unlikely ever to claim this levy as they would be unwilling to damage their relationship with a client to such a degree. He added that making it illegal not to pay the levy also would not help, as the suppliers would be similarly wary of potentially taking a customer to court.
The Lovetts boss went on to explain that, in his opinion, educating businesses on the subject of late payments would be the best answer. He outlined a strategy for suppliers to use when dealing with customers, centred around drawing up correct contracts so that late payments are expressly forbidden.
How to deal with late payments
Mr Wilson’s strategy indicates that credit controllers should make their late payment policy clear as early as possible, including all the relevant information in their terms and conditions. This will remove the need to invoke a government-ordered levy as the customer will have breached their contract. He adds that companies should not be afraid of being up front about this kind of information.
Checking invoices have arrived is also recommended, as this will prove that your customer knows about the amount due. This will be useful if the need arises to call them about a late payment, as you can simply remind them of what they already know.
Mr Wilson advises being clear about exactly how much is owed, and perhaps making a point of offering not to pursue any late levy (which you are now legally entitled to) if payment is made immediately. You could also explain that failure to pay will result in even more late fees.
You may find it useful at this stage to explain exactly what your customer’s fees are used for, in order to show them why their payment is important.
At this point, Mr Wilson recommends you act decisively on your stated intention to pursue legal action over the matter. Failure to do anything here will mean your requests will never be taken seriously, and you may find that this results in you having to pursue court action to retrieve your money.
A situation managed
It is clear that there is a delicate balancing act for credit managers to perform here, involving maintaining client relationships while still receiving what you are owed.
In many cases, simple dialogue will resolve the matter, and from Mr Wilson’s suggestions it is clear that this is preferable in the early stages as opposed to threatening legal action straight away.