Dawn of the debt

Despite legislation, late payments are getting worse and big firms are the worst offenders. SMEs need to buck up their ideas and ask for their money

The saying goes, 'Neither a lender nor a borrower be.' But in a time when everyone is credit-rich and cash-poor, and banks, credit agencies and loan companies are offering more and more credit to everyone, this is no longer even remotely applicable.

But the message behind the saying is more relevant than ever. Borrowing or lending money always creates a sticky situation when you inevitably have to ask for it back.

Research released last week by credit analyst firm Experian showed that late payments by UK firms are actually getting worse. This is despite the government bringing in the Late Payment of Commercial Debts (Interest) Act more than five years ago, which stated that SMEs could claim a statutory right to interest on late-paid debts.

According to Experian, the worst culprits for late payments are still the big enterprises paying SMEs. And many small companies will not use the legislation for fear of ruining a relationship.

One VAR told me that a well-known high-street chain is renowned for not paying its suppliers on time, and almost drove the VAR under. But the reseller refused to turn to the legislation for fear of damaging its relationship with the firm and losing any future business.

Although this fear is very real for many SMEs, there are other ways of ensuring that payments are met. Always use a credit-checking service, make sure that any contracts detail exactly when and how payments should be made, and don't just continually send letters - make a phone call to the firm and ask directly, explaining payment terms and conditions over the phone.

Other methods, such as offering a discount for early payments or taking the payment automatically by direct debit after a certain amount of time, save all the perceived embarrassment of actually asking for the money.

It might be an inherently British thing; asking for money is seen as slightly uncouth, or even rude. But with 4,000 firms going under in the first six months of this year as a result of late payments, it's about time UK businesses dropped the stiff-upper-lip attitude, stood tall and asked for what they are owed.