Keep cashflow positive and protected with the Small Business Commissioner

9 min read

Santander has collaborated with the Office of the Small Business Commissioner to help businesses that may experience late payment of invoices.

Small Business Commissioner

Businesses are facing unprecedented challenges and the Small Business Commissioner, Philip King has appealed to those in charge of supplier payroll to urgently consider accelerating invoice payments to the small business community:

For small businesses, cashflow is the difference between survival and failure. Coronavirus has put unprecedented pressure on the UK’s SMEs. When the cash runs out, businesses collapse.

Philip King

Small Business Commissioner

While Government is providing welcome support through a range of measures, the reality for small firms is that short term cash flow is still the most important thing, and paying them is vital.

The Office of the Small Business Commissioner (SBC) was launched in December 2017 to ensure fair payment practices for Britain's small businesses, and support them in resolving their payment disputes with larger businesses and bring about culture change.

Of the six million businesses in Britain, 50% are affected with 45% taking up to 3 months to get paid. 1 in 6 wait 6 months and this costs the UK economy £2.5billion every year.

At Santander we want to change this, so we’ve put together this guide to support the journey to becoming an entrepreneur. 

Have you suffered issues with late payments and not sure what to do next?

Take a scroll through the guide below where you’ll find top tips on how to effectively deal with late payments.

  • Undertake due diligence when receiving an order from either a new or existing customer. Check their credit rating, there are free online tools, check the companies house number against the purchase order and confirm who is placing the order and who and where you contact to obtain payment.
  • Consider pro forma sales for first order, this is normal business practice. New customers have to build up a credit rating with you.
  • Agree payment terms at order.
  • Provide regular statements and keep in touch with your customers.
  • Remember a sale does not count until it's been paid for.
  • Don’t be afraid to withhold goods or services in lieu of outstanding payment.
  • Keep your discipline; it is your business, your risk and decision, but credit ratings are in place for a reason.
  • Understand your customer and any unique payment requirements such as public sector contracts.
  • Adapt to your changing business needs. Talk to your customers.
  • Remember to build this experience in to your business.

Many businesses are not waiting for new trade agreements to implement their plans in key target markets. Already, 16% of businesses say they have begun trading with the US since the Brexit referendum in June 2016. China, Australia and India have become new markets for 12%, 11% and 10% of businesses respectively in that period. Many others have launched into Japan and Brazil for the first time.

Such growth indicates an increasing recognition of the scale of the opportunity in markets businesses might once have been reluctant to target. More than a quarter of the businesses in the Trade Barometer (28%) single out Asia-Pacific as the region likely to generate the highest levels of growth for their firms over the next three years, while 27% say North America.

Europe will continue to be an important market for UK businesses – 71% of international companies surveyed already trade with Europe and 15% believe the eurozone will generate most growth for their businesses – but growth prospects in other markets are proving especially attractive.

How to resolve a dispute

Mediation

A professional mediator, agreed on by both of you, can help you to work out a solution. You can do this before taking other action, or you can pause any legal action you’re taking to mediate. You can choose when, where and how mediation happens, giving you much more flexibility than, for example, taking someone to court.

England and Wales – use the Ministry of Justice online directory
Northern Ireland – use the Law Society of Northern Ireland
Scotland – use the Scottish Mediation Register

Complaint

Was payment due within the past 12 months?
Have you already attempted to resolve the payment issue with your customer?
The Office of the Small Business Commissioner might still accept your complaint if you have a good reason for not meeting these requirements, for example: trying to resolve the problem with your customer would have damaged your business or deliberate delays by your customer stopped you complaining within 12 months of when payment was due.

Interest Calculator

The interest you can charge if another business is late paying for goods or a service is ‘statutory interest’ - this is 8% plus the Bank of England base rate for business to business transactions. You cannot claim statutory interest if there’s a different rate of interest in a contract.

You can also charge a business a fixed sum for the cost of recovering a late commercial payment on top of claiming interest from it. The amount you’re allowed to charge depends on the amount of debt and you can only charge the business once for each payment.

Draft a new invoice including your original amount, add interest, add compensation, new total and send with an accompanying letter explaining that you were not paid as per the agreed credit terms and you are exercising your legal entitlement. Use this calculator to work out the interest and recovery charge.

Help from the Small Business Commissioner

The Small Business Commissioner has a range of further information on invoicing, contracts and mediation.

The Prompt Payment Code launched in 2008 and has played an important part in promoting a culture of prompt payment, committing its 2500 signatories to pay 95% of invoices within 60 days and work towards 30 days as normal practice. In the last 12 months, businesses that have failed to honour those commitments have been removed, and only re-instated when a suitable remedial plan has been approved by the PPC’s Compliance Board.

The Small Business Commissioner aim to build on this excellent work and look to increase the number of signatories, where good practice can be recognised by their customers and suppliers.

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