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Why Big Organisations Pay Small Businesses Late and What Small Businesses Can Do About It

In the 13 years since I set up johnpc ltd, I’ve provided services to a wide range of organisations, large and small across a broad range of industries (you can see their logos on my website) and they’ve (nearly) all been brilliant to deal with.

I’ve also been fortunate in that I’ve very rarely had to deal with late payment issues from customers; the (very) few times I have, it’s always been a large corporate organisation and it’s (mostly) been an administration issue, as opposed to a wilful intent not to pay.

When it has been a purposeful action to pay late, it has always been the finance/accounts payable department trying to hold onto cash to meet a quarterly or end of year target; it’s never been due to dissatisfaction with the services I’ve provided or for any other genuine reason.

My observations when it has happened are,

  • It’s caused an acute sense of embarrassment for my day-to-day contacts who have to apologise for the actions of their colleagues

  • It’s proof that for (some) organisations, the values they write on their walls or spend a lot of time virtue posting on LinkedIn and other social media sites are worthless

  • The HMRC, the VAT and other “big” suppliers always get paid on time, because of the potential punitive impact of not doing so

  • It’s always the small businesses who get paid late, because they are the ones who can do the least to push back against it and most likely to be coerced into compliance with late payment behaviour

  • It’s passive-aggressive corporate bullying, because they know that (in most cases) they can get away with it. The threat is if you don’t comply you will be removed from the preferred supplier list, though they will never admit to it

  • Their actions aren’t personal (even though for you it feels like they are), if they are doing it to you they’ll be doing it to others as well.

When Carillion went bust in 2018 they owed money to over 30,000 organisations, many of which were small businesses, many of which went bankrupt.

Organisations who don’t pay you on time are using your money as working capital to run their business; that’s not something they told you when they gave you the purchase order is it?

So, here’s some advice from me to you if you run a small business and late payment from big organisations is an issue for you and you want to take control,

  1. Ideally, you should establish clear payment terms before you provide the service; don’t be afraid to negotiate terms that work for you; onerous one-sided terms are a forewarning of problems ahead

  2. Make sure you include late payment clauses in your terms and conditions of supply. The UK government has several pieces of legislation in place to help businesses recover unpaid debts; these include the “Late Payment of Commercial Debts (Interest) Act 1998” and the “Late Payment of Commercial Debts Regulations 2013”. At time of writing the interest rate legally chargeable on late payments is 11.5% (Bank of England Base + 8%)

  3. Join a trade association; trade associations can provide small businesses with access to resources and support, including advice on dealing with late payments

  4. Use credit agencies to check the creditworthiness of big companies before doing business with them and consider credit insurance to protect yourself from bad debts. Just because they’re a big company doesn’t mean they’re creditworthy or trustworthy (as in the case of Carillion)

  5. Send invoices promptly after providing goods or services. This will help to ensure that the payment due date is clear and that the invoice is received in a timely manner

  6. If a payment is overdue, follow up with the customer as soon as possible. This can be done by sending a reminder letter or email, or by making a phone call. Don’t be a passive bystander, they’re using your money to run their business

  7. If it isn’t resolved quickly, escalate the issue to the very top of their structure, CEO, Group Finance Director etc (unless this is who you are already dealing with); this gives the senior executives a chance to be aware of your issue and the opportunity to resolve it

  8. Whilst in my experience it’s very rare with large organisations, If they are genuinely unable to pay the full amount on the due date because of a cash flow issue, consider negotiating a payment plan. This can help to avoid legal action and can establish trust with the customer.

  9. Before pursuing legal action, send a formal letter of demand, outlining the amount of the debt and the legal right to charge interest and compensation

  10. Eventually, If the customer is unwilling to pay the debt, you may have to resort to legal action to recover your money. Obtaining a County Court Judgment (CCJ) is a relatively straight-forward process and (once granted) it can be escalated to High Enforcement Officers (Sheriffs); who for a one-off fee will collect on your behalf. Don’t worry about the fact that you won’t get repeat business from them; regardless of how much business is on offer (always tempting for a small business) a customer who does not pay is worth less than worthless.

It pays (no pun intended) to stay calm, professional and polite throughout the process, and to document all communication and attempts to collect the debt.

Fortunately, on the few times a large corporate organisation has put me through the late payment mincer, I have always (eventually) got my money, but it’s a draining process to be put through and there are no winners in the outcome.

And here’s my final piece of advice.

If they pay you late once with no consequence, they’ll do it again. So, if you decide to deal with them again, ask for some or all of your money up front.

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