SMEs quick to use law for late payments
Businesses are using the threat of legal action more than a month sooner than they were a year ago to encourage customers to pay unpaid invoices, new research has found.
According to debt-recovery law firm Lovetts, businesses issued Letters Before Action (LBAs) 39 days earlier in February 2009 than they did in February 2008. A formal letter warning of intended court proceedings, often written by a solicitor, LBAs are used to encourage payment, or to obtain a response from a customer before issuing a lawsuit.
“As firms, particularly small businesses, feel the pinch and set out to manage their credit better, LBAs are being used at an earlier stage to let customers know they mean business,” said Lovetts chairman, Charles Wilson. “Often businesses just need a firm reminder to pay up, and in most cases, LBAs do the job.”
Research by Lovetts found that in 80 per cent of cases LBAs resulted in no further action being taken, as outstanding invoices were successfully settled.
“Firms can either appoint a solicitor to write an LBA or write their own notice of intended court action, which can be a cost-effective route for small businesses,” said Wilson.
“Small firms are often worried about damaging the relationship by issuing a stern letter but in fact, most large companies receive these sorts of letters on a regular basis, so they shouldn’t be hesitant,” he added. “In the current climate, firms need to get tougher on chasing debt and take action more quickly.”
By law, if there is no agreement in place or custom in operation, there is a default period of 30 days to pay invoices before they become late.
More information can be found in our business advice article on late payment legisaltion.