Late Payments

Late payment is inexcusable, shameless and completely unfair. Independent professionals don’t receive regular income like employees and therefore rely on being paid on time to keep their business afloat.

Dash for cash leaves self-employed workers chasing £200 a month in late payments: The self-employed workers who keep Britain’s houses clean, tidy and well-maintained are among those owed £208 in an average month by customers who don’t have cash in hand to settle bills.

This means that the UK’s sole traders - including many cleaners, decorators and gardeners - are chasing nearly a fifth (18%) of their earned cash income each month, significantly impacting their cash flow and forcing them to spend time recovering debts. The figure rises to £1,846 for other small businesses with between one and nine employees.

Despite having the best intentions (86% of us agree that paying small businesses on time is important and 57% would prefer to pay by cash) 28% of us regularly have to dust off cheque books, make a dash to the cash machine (44%) or simply pay late (17%).

But the dash of shame to the cash machine to get money to pay Britain’s one man bands – or the red-faced “I’ll have to pay you next time” - could soon be a thing of the past.  Paym, the easy way to pay small bills, friends and family using just a mobile number, is available to more than 90 per cent of UK current account holders – and tradespeople can get paid straight to the number on their business card.

Craig Tillotson, Managing Director of Paym said: “Window cleaners, gardeners and decorators are facing challenges from well-meaning customers who often don’t have the cash on them to pay there and then. Paym is an easy alternative to accepting debit and credit cards which we know many of these types of business resist because they find them expensive or inconvenient. It will be a massive help with time-poor customers.

“We know that many small businesses rely on their mobile to run their business – and Paym makes it possible to use that vital phone number to easily accept payments. We’re urging businesses and self-employed people to sign up today and to spread the word amongst their customers – it should help both parties avoid awkward situations or inconvenient trips to the bank.”

Paym in action – case study

Tim Sutton is a sports therapist who offers massage and treatments that cost roughly around £30 per session. He currently has 1,500 customers on his database, treating around 30 people a week. The summer period is a busy time for Tim as more people venture outside for sporting activities.

He has been using Paym for nearly a year, originally for personal use but has now introduced it to his business. As a small business Tim used to only accept cash or cheques, not wanting to invest in and carry around a card machine.

Tim is a huge fan of Paym, he says: “‘Paym is perfect for my business and customers. Not only does it save me multiple trips to the bank, there’s no need to carry around handfuls of cash. It is quick and easy to use and my clients now only need to know my phone number.”

Payments are made through Faster Payments or LINK at the same speeds as existing current account, online, and mobile payments – most payments arrive in seconds.

The research from Paym also looked at how we as a nation rely on self-employed people such as our window cleaners and electricians, and how much we pay them for their services: Paym is an easy, secure way to send and receive payments to a current account using just a mobile number. Paym means there is no need to ask for other people’s sort code or account number, or tell them yours.

Other key findings from the research:

Young people (18 to 34-year-olds) are the most likely to make the dash for cash; more than half (56%) have done it in the last year, compared to just one in three (33%) of those aged over 55. One in six (17%) have paid a small business late because they didn’t have cash on them - which rises to 26% of those aged 18 to 34. 23% of sole traders have given up chasing a payment and 30% of sole traders have stopped supplying a customer due to consistent late payment.

Options for chasing late payments: Late payments are an increasing problem for small businesses. So, when the normal channels of chasing invoices have failed, here are some of the options available to ensure your finances remain solvent.

Go legal:

Federica Monsone, owner of network storage provider A3 Communications, decided to contact a solicitor after a client had ignored three invoices she had sent them. ‘My options seemed to be that I could either hire a debt collector, which I felt would cost too much money, or write the debt off,’ she says. 

For Monsone, neither of these options seemed cost-effective, particularly as writing the debt off would be no guarantee of future contracts with the client. ‘It seemed to me that the company was struggling so I was doubtful whether we would even get any more business from them. And even if we did, this might have been the first of many non or late payments.’

After doing some research Monsone eventually found a solicitor who wrote her client a legal letter demanding payment. She says: ‘This only cost £100, but it made us look serious enough for them to consider that there may be legal ramifications if they didn’t pay. I recovered all the money minus the interest they owed.’

Don't mess around:

Carl Hackman, director of debt collection agency CCI Legal, says that over the last two years there has been a growing demand on the part of small businesses for using their services. The company typically charges ten per cent of the total amount recovered. He says: ‘Small companies often don’t want to upset their larger clients. So by using third-party intervention it's diplomatic and tactful and in everyone’s interest.’

Hackman adds that the advantage for a small business with this approach is that it has a better chance of retaining its client, as the company is only paying what it owes. ‘No late charges are incurred and our fee is paid by the small business,’ says Hackman.

Alternative options:

Benjamin Smart, regional manager of Business Link London, suggests there are other things you can do before taking legal action or calling in a third party. He says it is a good idea to visit the company first and find out if there are any discrepancies with the outstanding balance.

‘This should be followed up with a phone call to set a date and standing order for when the money is due to be paid by the client,’ says Smart. 'If it is a large amount of money, say around £100,000, this is the point where you can get the bank to bring in invoice financing. If the company doesn’t follow through with the payment the bank pays 90 per cent of the money upfront to you, and then chases the debtor with legal action.’

Kick up a fuss:

In a landmark victory for small businesses, Justine Thompson, director of training company MTa International, took on pharmaceutical giant Boots for extending its payment policy to 75 days and charging a 2.5 per cent processing fee. She says: ‘As soon as we started to get the media involved and I had agreed to speak on the radio, they backed down and changed their terms back to 30 days with no 2.5 per cent fee.’

But Thompson is sceptical about the options currently available to SMEs. She says: ‘I don’t see debt collection as being any better at gaining leverage than legal options; when SMEs start to kick and fuss they are in danger of losing their clients. I was fortunate because I wasn’t in a position where I was reliant on the Boots contracts.’ For Thompson, small businesses need to join together to fight larger organisations. ‘It’s not just a business issue but a moral and ethical one too and it’s not something they can fight on their own.’

Self-employment body supports calls to end late payment scandal: IPSE, the Association of Independent Professionals and the Self Employed, has today supported calls from business groups, the FSB and IoD, to put an end to the scandal of late payment.

Simon McVicker, Director of Policy and External Affairs at IPSE, said: “Late payment is inexcusable, shameless and completely unfair. Independent professionals don’t receive regular income like employees and therefore rely on being paid on time to keep their business afloat.

“Late payment is a key issue for the self-employed which is why it is at the forefront of our manifesto. The Conservatives are taking steps in the right direction by acting on IPSE’s proposal for a small business conciliation service and enforcing the Prompt Payment Code, but we still must put pressure on big businesses to do the right thing when it comes to paying their suppliers. We would like to see all the major Parties agree to this before the General Election."

A survey commissioned by IPSE with ComRes shows overwhelming support from the general public to tackle the problem of late pay. The survey asked 1,000 ‘traditional’ employees and self-employed professionals in the UK’s most marginal constituencies and found 79% support strengthening rules to prevent this issue. The survey also found 78% of people support developing a way for small businesses to settle disputes without court action. 

Simon McVicker added: “IPSE stands with the IoD and the FSB in tackling the scandalous problem of large businesses bullying suppliers by enforcing long payment terms. “Our research shows that the general public overwhelmingly support proposals to end the scandal of late payment and we hope big businesses will wake up to public opinion. 

“Late pay means microbusiness owners get caught in a catch-22 situation - they rely on regular pay but can’t excessively chase payment because it ruins relationships. We will continue to work with Government and business to ensure the culture of payment is radically changed across the board.”