Thursday, October 2nd, 2008
The retail clothing chain Matalan has angered many of its suppliers by announcing that it is deducting 2% from their invoices.
It says the move will help to pay for TV advertising and expansion plans. That might be very helpful for Matalan but it’s a major blow for many of its small suppliers who are already struggling in the wake of the credit crunch.
The problem of late payments seems to be getting worse every month. Nearly nine out of ten firms who took part in a survey carried out by the Forum of Private Business said that their bigger customers failed to pay their invoices within the agreed timescale.
Nearly one in three is owed between £1000 and £5000 which they say is causing cash flow problems.
The question, of course, is what can firms do about it? The answer is that they can do a great deal if they are prepared to exercise their rights.
When companies fail to meet their agreed payment dates or decide to impose arbitrary deductions they are essentially flexing their business muscle. They are relying on the fact that many suppliers will be too afraid to challenge them for fear of losing future business. The dilemma for firms is whether to sit back and accept it or to take action and insist on getting the money due to them.
The course taken will be influenced by many factors including how important the debtor company is to your business and how desperate your cash flow problem has become.
For many firms, however, the issue ultimately boils down to this: what is the point of working hard to supply a firm that then puts your very survival in jeopardy by delaying payment or even refusing to pay the agreed amount.
It is at this point that many firms decide enough is enough and press on to assert their rights.
The first step may be to simply ask your solicitor to draft a letter requesting payment and outlining what action may be taken if the debt is not settled.
Under the Late Payment of Commercial Debts (Interest) Act 1998, for example, firms are allowed to charge interest on overdue invoices. This punitive charge is currently 8% above base rate. They are entitled to levy a statutory late payment fee of between £40 and £100 depending on the size of the debt.
Most companies will pay up immediately when they see you are serious about exercising your rights but for more hardened cases, it may be necessary to initiate legal proceedings. This steps up the pressure even further and often results in payment before the matter ever gets to court.
Suppliers are also protected from unilateral changes to contract terms such as when a customer suddenly decides that they are going to pay less than the amount agreed. The supplier is entitled to insist on sticking to the original terms. That is basic contract law which cannot be overturned on the whim of one of the parties involved.
If one of your customers does decide to pay less than agreed then you will almost certainly be able to claim interest on the outstanding amount and impose a late penalty charge under the Payment of Commercial Debts (Interest) Act 1998.
You should be cautious if you are tempted to continue with contracts after you have received a letter from the customer informing you that they are going to pay less. If you go ahead and fulfil the order it may suggest that you have accepted the new terms.
Firms will always have to balance the need to be paid on time with the need to maintain a good relationship with an important customer, but for those who feel the time has come to act, the law offers a considerable level of protection.
© Copyright 2008 Burt Brill and Cardens Solicitors