May 18 2020
Debt Recovery Articles

A Guide for SMEs During COVID-19

Did you know that before the outbreak of the COVID-19 pandemic 76% of all UK businesses were being paid late?

According to a survey from Xero Small Business Insights, their research suggests the small and medium business economy could have been forced to deal with an average deficit of £141bn as a result of late payments.

Before COVID-19 was a lot of money and a lot of businesses being affected daily by late payments.

Now picture this; the Bank of England has warned that in 2020 the UK economy could shrink by a whopping 14% as a direct result of the lockdown measures implemented to combat COVID-19.

According to a survey of 5,300 businesses by the ONS
[Office for National Statistics] after lockdown between the 23 March and the 6 April, nearly half of one per cent of businesses surveyed actually ceased trading. Nearly 40 per cent of businesses who were still trading reported significantly “lower” turnover compared to last year and a further 17 per cent reported that turnover was “slightly lower” than the same period last year.


There are many businesses who have never encountered a problem either paying their invoices on time or receiving payment from their customers on time. However, right now the whole country is in unchartered territory. Cashflow, staffing issues, supply issues all to name a few;

Many businesses are witnessing or experiencing problems that even with the best disaster or business continuity plan could never envisage.

Be warned, through no fault of your/their own, your best customer could become your worst nightmare.

Right now, businesses should focus their attention and resources on damage limitation.  It is far more important to be productive and engage with all of your debtors than to adopt a heavy hand approach. These are unprecedented times, in some cases, late payment could genuinely be out of your customers control.

In some instances, there maybe be no way of telling the true impact of COVID-19 on a business.  For sure, for some businesses COVID-19 will undoubtedly be devastating and it’s quite possible that some rogue businesses may use COVID-19 as an excuse to withhold or delay payment. Trying to figure this out could prove to be difficult without conducting a through review/investigation of your debtor.  

There are methods and ways that business can adopt to avoid and reduce the risks of late payments during these unapparelled times, in this guide we have put together a list of ways that you can adopt to help your business deal with late payments.

Keeping Late Payments to a Minimum

In some instances, it’s difficult to know exactly what to do when someone owes your business money.

Remaining professional and not taking it personally can be extremely difficult, especially if you have built a relationship with a customer.

1. A Clear Credit Control Procedure:

For most people it can be very uncomfortable dealing with late payments. The norm would be to send a seven-day demand for payment. 

My advice during this pandemic and beyond, is, as soon as your business knows a payment is late, pick the phone up and speak to your customer. This allows you to get a good understanding of why the payment is late and an opportunity to put a payment plan in place.  If there are any dispute with the invoice preventing payment then now is the time to know and do something about it.

2. Late Payment Cost

On the first November 1998, the government introduced The Late Payment of Commercial Debts [Interest] Act. The legislation was introduced to help business manage late/slow payment from their customers.

Since 1998 the Act has been amended several times in the form of regulations.

The principle aim is to compensate smaller businesses to prevent late/slow payment from occurring when contracting with large firms.

Claimants can claim compensation of £40.00 on any invoice value from £1.00 to £999, £70 from £1,000 to £9,999 and £100 from £10,000 upwards. In addition, interest can be claimed 8 percent above the Bank of England base rate, 30 days from the invoice date if there are no payment terms in place.

In 2013 the legislation was amended that allowed claimants to claim their “reasonable” debt recovery costs.

Many businesses use The Late Payment of Commercial Debts [Interest] Act as a deterrent to help them receive prompt payment. However, during these unprecedented times it is important to understand that many financial institutions; banks, credit card companies, loan providers, HRMC have recognised that many businesses may endure cashflow difficulties, and have taken steps to ease some of the financial burden with payment holidays. Therefore, in these circumstances invoking this piece of legislation before entering into some sort of dialogue with your debtor may be a little pragmatic

3. Know Your Customer! It’s Important to Obtain as Much Information as Possible About Your Customer From the Outset:

When you do business with someone, do you know exactly are you contracting with?
A sole trader, a limited company or a partnership?

Many businesses use different trading names from their actual legal entities. Knowing the name of the business e.g. the shop name or restaurant name is simply not good enough.

It is important to know who actually who owns the business, where they are registered; if they are linked to other businesses and or have, they had any previous businesses that have gone into administration/liquidation.

Now is the time to conduct an audit of your customer base. Check to ensure that you have their correct trading name, company registration number, address and crucially their trading address, director’s name/s and home address.

4. Have clear Terms and Conditions

Good record keeping is crucial. Ensure that your payment terms are set out in your Terms and Conditions and are up to date.  The number of businesses that do not have specific payment terms and conditions is unbelievable!   

Please take note; you don’t have to have a degree in contract law.  Several on line companies provide professional and legal payment terms and conditions, service provider agreements, order forms etc. all for a modest fee. All are available to down load instantly. There can be no excuse!

5. Maintain a Good Relationship with Your Debtor

Rapport with your customers or client is key. However, it’s important not to take things personally and to maintain a professional relationship with your debtor. Having a defined process is very important, however, choosing the right time to be flexible can sometimes be difficult and can caused more problems than anticipated.

If you have made an arrangement and after a defined period has passed no payment is forthcoming, then hand the debt over to a debt collection agency. It’s important that you do not delay and adopt this action as part of your routine process.

6. Instruct a Professional Debt Recovery Agency

Instructing a Debt Collection Agency like First Capitol will de-personalise the collection process and increase your chance of recovering the money owed.

If your business is insured, in some cases it is a requirement of the insurers that formal legal/recovery action is taken to recover unpaid invoices after 30 days.

It worth remembering that appointing a reputable Debt Collection Agency won’t do any damage to your business relationship; however, if late payments persist, it may be worth considering whether it’s actually worth keep them as a customer.

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21 steps to help reduce bad debt from occurring in your business

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