How can SMEs tackle the ongoing issues of late payments and commercial disputes?

The issue of late payments and other unresolved commercial disputes has been building momentum over recent years, with leading industry bodies campaigning to raise awareness of the problems, and the Government unveiling plans to improve the culture around payment practices.

Yet despite these efforts, a new survey of hundreds of SMEs has found that late payments continue to cause serious concerns for six out of 10 small businesses across the country, with more than 40% believing that the delays in receiving vital revenue are putting the future of their business at risk.

SMEs are being forced to delay plans to invest and expand, incurring mounting debts through the use of overdrafts, and having to pay their own suppliers late – creating a vicious circle which shows little sign of being broken.

The worrying picture was highlighted in the survey carried out by commercial dispute resolution service Escalate, which found that 96% of SME respondents regularly experience bad debt or other commercial disputes, with half frequently made to wait at least 60 days for payment. It’s also clear from the findings that the increased focus on the issue of late payments has so far failed to improve the situation. Less than five per cent of respondents said that instances of late payment and other commercial disputes have declined over the past five years, with 41% of SMEs experiencing an increase in late payments and other commercial disputes.

However, despite the damaging impact on many businesses, fewer than one in four were prepared to take legal action to resolve the problems – with costs, length of time, the hassle of the process, and concerns about losing clients’ business given as the main reasons for not pursuing the legal route. This echoes the results of a 2018 study by the Legal Services Board, which found that very few SMEs were willing to instruct a lawyer when faced with a dispute. Both studies also reinforce the view that the traditional dispute resolution process is broken, and that more needs to be done to help SMEs with the bumps in the road that they will inevitably experience.

So what can SMEs do to protect themselves against the dangers of late payments and disputes? The following six steps can help:

1. Do your research: Get to know your client – invest time in due diligence, whether by asking for references, undertaking a credit check or reviewing the client’s accounts.
2. Make your terms clear: Agree expectations from the start – clearly state your payment terms and other important points up front, to avoid any room for doubt.
3. Document as much as possible: A paper trail of important decisions can act as a reminder of the agreements made, and is also likely to help in any court case.
4. Address issues early: A potentially tricky conversation early on can prevent a problem from growing into a complex legal case costing time and money.
5. Understand the background: Talk to the client to understand the reasons for the issue. Building a relationship may also provide them with an added incentive to prioritise your concerns.
6. Be firm but fair: Your business is important to you, so nobody expects you to give in at the first sign of a disagreement. But don’t make things personal – step back and use an impartial observer, if needed.

If, having taken these steps, you feel the other party is unlikely to change its mind, it may be time for expert advice – which is where Escalate may come in. This nationwide network of partner firms is committed to resolving late payment issues and commercial disputes – with a focus on intensive negotiation to try and reach a settlement within three months – enabling SMEs to gain access to justice through dispute resolution and, if necessary, commercial litigation.

It seems clear at the moment that late payment and commercial disputes are ongoing problems for SMEs, which can threaten the expansion plans and even the survival of existing businesses. But by taking the right steps, and seeking expert advice when needed, SMEs can protect themselves against the potentially damaging impact of both issues.

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Courtesy of Price Bailey – 28/10/2019

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