There's no point running a business unless you get paid, but ensuring a client pays on time appears to be getting harder. The credit crunch heralded a new era of bad practices for late payments, which sent many small businesses to the wall. Payment company Bacs has been monitoring the subject since 2007. It found that in those pre-recession days, small businesses were owed around £16bn in late and unpaid invoices. By 2011, the figure had risen to over £30bn, and it has not fallen below that line since. For instance, Bacs' latest survey, released last April, showed small businesses were owed £30.2bn, with close to one million businesses suffering late payments.
For entrepreneurs and small businesses, it's an emotive subject. The government is regularly heard lauding their achievements and suggesting they are the ones who will deliver the UK's much-needed economic growth. But it seems somewhat oblivious to calls for an even playing field in payment practices.
Arnab Dutt is the managing director of Texane, a small manufacturing business based in Market Harborough. His business makes polyurethane wheels for escalators and is, he says, "one of the businesses Mr Cameron likes to talk about".
However, he regularly suffers from late payments and says larger businesses are the worst culprits.
"Big PLCs continue to use small businesses as an alternative to banks and they should be named and shamed," he says. According to Dutt, small businesses don't have the power to take on big corporates and he therefore wants to see a regulator brought in for late payments. "I believe there should be a third party for whistleblowers to go to anonymously and provide evidence of late payment. Unless we name and shame them this will go on and businesses will go to the wall. It's really damaging the UK economy."
Dutt is by no means alone in calling for stronger laws to prevent late payments. Jon Priest is the CEO of SPA Future Thinking, a market research firm which counts many major businesses among its clients. "There's no correlation between the size of the company and the speed at which they pay. Small clients are often pretty good payers, but bigger companies will often only offer 90-day terms," he says.
Priest believes larger companies are well versed in delaying tactics: "If there's an error or a query with an invoice, they won't inform you until the 89th day. Then your invoice is put at the bottom of the pile and you can wait another 90 days."
The main problem businesses find when dealing with late payments is the effect it has on cashflow. Reece de Ville is the founder of Devillefilm, which makes films and videos for the broadcast industry, corporate businesses and public sector clients. "My terms are to be paid within 30 days, but quite a lot of my customers take longer," de Ville explains. "I know I will get paid eventually, but you are in limbo until you do. It would be great to have regular payments as it has a real effect on cashflow."
De Ville has also experienced some of the payment delaying practices noted by other entrepreneurs. He says: "Sometimes you send an invoice but don't hear anything, and then after
the 30-day period has passed they claim there has been some kind of error. Other times, you submit the film and they sit on it for months, say nothing, and then request changes. So I have already done all the filming and editing and it's their fault it hasn't been completed, but this is used as a reason not to pay."
Businesses that experience late payments are entitled to charge their customers interest – 8% plus the base rate. Also, further legislation came into force in March this year, which states that private businesses must pay within 60 days and public sector clients within 30 days. However, entrepreneurs are reluctant to charge clients interest, as they fear it will impact on their relationships. "We have never charged late payment interest because in practical terms larger businesses won't pay and they could always use someone else," says Dutt.
Businesses will always need to work hard to maintain their cashflow and good housekeeping or credit control is key. It is important to invoice regularly and to ensure that clients are fully aware of their terms and conditions. Businesses also need to track and monitor payments, chase them up, send reminders and make decisions on the extent to which they can offer clients credit. New clients need to be assessed from a credit perspective before work begins and, in some cases, the business must be bold enough to turn work down.
If a debt remains unpaid, then businesses can go to Moneyclaim Online to use a court to pressure their client for a small fee. This can be used for debts under £100,000 and if the offending business still doesn't pay it could receive a County Court Judgement (CCJ) against it. However, this does not guarantee payment and the plaintiff might also have to send bailiffs, who would attempt to seize assets to repay the debt. But even this doesn't guarantee payment, as bailiffs are restricted in what items they can take and must not take goods that are critical to the business' operations.
A sterner measure is to send a winding up petition. which, if accepted, could close a company down for failure to pay a debt of £750 or above. However, this is a nuclear option that would, in most cases, mark the end of a relationship.
The businesses interviewed here, as well as others that didn't wish to go on the record, are perfectly aware of the challenges of running a business. Many have sensible credit control procedures in place, but still suffer from cashflow issues due to unpaid debts. Their late-paying clients are often well-known organisations who could pay sooner.
However, entrepreneurs believe they are unlikely to do so unless compelled. Priest suggests that payment practices should be part of a company's annual audit and that poor payers should have their credit affected. "It's so massively unfair that I feel there should be legislative guidelines put in place," he says. "Small businesses have been held to account by the corporate Goliaths for far too long and I, for one, want to see an end to it."
Sign up to become a member of the Guardian Small Business Network here for more advice, insight and best practice direct to your inbox.