Calls to tackle late payments after Carillion crisis
The collapse of the UK’s second largest construction company has, once again, brought late payments to the top of the national news schedule.
In the wake of Carillion’s liquidation, many small firms have been left in an uncertain position – unsure if they will be paid what they are owed.
For some firms, the problem has been compounded by the Carillion group’s punishing 120-day maximum payment terms.
Mike Cherry of the Federation of Small Businesses says that many of Carillion’s sub-contractors could be owed money going back months.
He said: “It is vital that Carillion’s small business suppliers are paid what they are owed, or some of those firms could themselves be put in jeopardy, putting even more jobs at risk besides those of Carillion’s own employees.”
Cloud Accountant Director Miles Grady said: “Carillion were infamously bad payers, but in the absence of Government regulation or industry self-regulation the group managed to get away with it.
“For years, small construction contractors absorbed more of the risk and effectively financed their employers who held onto cash that was owed to the small firms.”
He continued: “The Carillion case has put late payments right back on top of the national news agenda – but this isn’t just a problem in the construction industry.
“Almost every small firm is affected by late payments in some way and the evidence suggests that the problem is getting worse.”
New research shows that the average SME is owed more than £60,000 in late payments, with 11% of small and medium sized firms owed more than £100,000.
The problem is particularly bad for British exporters. Separate research shows that EU-based firms took 30 times longer to settle invoices from UK companies in 2017 compared with 2016.
To try and combat the late payment crisis, the Government appointed Paul Uppal as the first Small Business Commissioner in December.
Former Conservative MP and business owner, Mr Uppal is supposed to act as a figurehead for the small business community, but the post’s powers are limited.
Tackle late payments with cloud accounting software
Cloud accounting software helps small business owners tackle late payers and improve their cash flow.
The automatic bill reminder function on software such as Xero allows small business owners to automatically send out a reminder when a payment is due.
This friendly reminder can help to jog a client’s memory and speed up payment. It can also be followed up with more stringent reminders if invoices remain unpaid.
Charging interest on late payments
You can legally charge interest on late payments. Small businesses can charge interest at 8% plus the Bank of England base rate.
This means that if you are owed £1,000 and the base rate was 0.5% then the annual statutory interest would be £85.
You can also serve late paying businesses with a fixed sum for the cost of recovering late payments.
For debts up to £999.99 you can charge a one off fee of £40. For debts over £999.99 and under £9,999.99 you can charge a one off fee of £70. For debts of £10,000 or more you can charge a one off fee of £100.
To learn more about FreeAgent, Xero or any of our cloud accounting solutions please speak to a member of the team today. Call: 0808 281 0303.