Anyone involved in a business providing goods or services on a credit basis is likely to deal with late payment from time-to-time. This has a number of effects, including:
- Annoyance and irritation;
- Cash-flow – unless you are in the happy position of having substantial “spare” cash, most businesses rely on payments coming in to meet their outgoings, at least in part;
- Commercial pressure – particularly if your customer is much larger than you, they may try to leverage other concessions by delaying payment;
- Cost and/or inconvenience in pursuing the payment; and
- Ultimately, if the sum is big and/or late enough, a risk of insolvency. I have seen several clients running what I consider to have been successful businesses, but where a targeted delay in payment by a major customer has put them at risk of insolvency.
The first key point in respect of late payments is whether the payment is actually late. This might sound obvious, but regular readers of my articles (and particularly the articles on terms & conditions at Part 1, Part 2 & Part 3) will recall that often things are not quite so clear cut. You need to consider:
- Are your terms & conditions clear as to when payment is due – both the period of time and when that period of time commences?
- Have your terms & conditions been effectively incorporated into your contract with the customer?
- Is it genuinely a late payment scenario, or is there a dispute about your goods/services that may justify some/all of the withheld payment? What do your terms & conditions say about withholding payment in the event of a dispute? What do they say about you suspending any other performance whilst the payment remains outstanding?
Ideally your terms & conditions will set out clear consequences in respect of late payment, including interest to be charged. If they do not, then you may be able to claim interest and other costs at law, depending upon the circumstances.
It is important that you deal with late payment promptly and effectively, in order to give you the best chance of recovering the payment owed. In particular:
- You need to be alert to the expiry of your credit period. It is unhelpful to allow matters to drift for additional weeks or months – not only does it risk your customer sliding into insolvency (and so potentially leaving you without the ability to recover any payment), it also gives the customer additional time to find an argument not to pay – for example, if there are minor issues with your goods/services in the meantime;
- You should take early legal advice. This can be critical to spotting a wider issue – for example, one client recently came to us in respect of a debt for the sale of a piece of engineering equipment – on reviewing the contract we found (and corrected) a significant flaw in their terms & conditions, which reduced their risk on future sales. It also ensures that your initial response to the non-payment does not cause you unintended problems.
In respect of straightforward, undisputed debt claims, Sills & Betteridge offer a low-cost fixed fee debt recovery service with an excellent success rate. In respect of more complex and/or disputed matters, myself (from a contract law perspective) and our highly-respected Commercial Litigation team can review matters in detail and advise you on a practical, commercial way forward. Please give me, Euan McLaughlin - Partner Commercial Department, a call or send me an email if you would like to discuss your needs.