Payment Terms

Accounting firm Market Deeping Moore Thompson warns businesses to take action now on late payments

According to a new study, 94% of small businesses in 2021 have experienced a “cash crisis” at least once. writes Matt Upex of accounting firm Market Deeping Moore Thompson.

The same study by Xero Small Business Insights and Accenture also showed that 23% of small businesses experience cash flow problems for at least six months of each year, with late payments and credit issues being the main culprits.

A critical part of cash flow management is credit control, but knowing how to manage debt and ensure payments are made on time can be tricky.

Matt Upex

Many companies may not know exactly how to classify a late payment, and to some extent there is no single answer to this question.

The rules relating to late payment are set out in the Late Payment of Commercial Debts (Interest) Act 1998 and its related amendments.

However, most companies usually define their payment period in their contracts or terms and conditions of sale.

In these documents, companies can define the payment terms that best meet their requirements, and these will usually be agreed in advance.

Moore Thompson
Moore Thompson

Where a payment date is not agreed, the law provides that payment is overdue 30 days after receipt of the invoice by the customer or delivery of the goods or services.

If payment has not been received within these deadlines or within the contractually agreed deadlines, late payment penalties may be applied, which differ according to the size of the debt.

You can also claim a reasonable fee from the debtor each time you try to collect the debt, which can be charged for each unpaid bill.

When a payment remains unpaid, you must send a second reminder 14 days past due and if the debt continues to be unpaid, several actions can be taken, ranging from stopping the supply of products or services to litigation and debt collection.

Although the latter should be seen as the “nuclear option”, it is important that companies enforce their payment terms or else they will face a “cash shortage”.

If you are having difficulty with controlling your credit and debt, we can help you put processes and software in place that can help. please talk to me by calling 01778 380850 or visiting www.moorethompson.co.uk