Debt recovery: recent changes to tackle late payments to businesses

Update: Holmes & Hills no longer offer a fixed rate debt recovery service. However, our specialist debt recovery solicitors are still available to offer advice, so contact us on 01206 593933.

The Government has recently addressed late payment by insurance companies to businesses. Where a business may have suffered a major loss as a result of fire or flood for example, historically insurers were under no legal obligation to pay valid claims within a reasonable time. Further, if the business was unable to continue or suffered loss as a result of waiting for the insurance company to pay out, it was unable to claim in respect of that loss.

The Enterprise Act 2016 (‘the Act’) received royal assent on 5th May 2016 and is now law. Section 28 of the Act inserts section 13A into the Insurance Act 2015, and provides that it shall be an implied term of every insurance contract that if the insured makes a claim the insurer must pay any sums due within a reasonable time. If payment is not made within a reasonable time, the business is able to claim damages (in addition to interest on the sums due).

Introduction of a Small Business Commissioner

The Act has also created the role of Small Business Commissioner. Anna Soubry (the Minister of State for Small Business, Industry and Enterprise) stated that she wanted the Commissioner to act as a ‘disincentive to unfavourable payment practices, and build the confidence and capabilities of small businesses to help them to assert themselves in contractual disputes and negotiate more effectively.’

When the Act was passed Sajid Javid (Business Secretary) said that it was “proof that this government is delivering on its commitment to back the business owners who are the real heroes of our economic recovery.” Chris Bryce (Chief Executive of the Association of Independent Professionals and the Self-Employed (‘IPSE’)) added “one of the commissioner’s key responsibilities will be dealing with companies that pay late, one of the biggest challenges facing the self-employed.  IPSE research shows almost three quarters of disputes between freelancers and clients stem from late payment.” The commissioner has been given the power to ‘name and shame’ companies that persistently pay late.

At the date of writing this article, the role of Small Business Commissioner is yet to be filled.

Recent BIS Research Results

During the passage of the bill, the Government confirmed that it is committed to combating late payment of sums due to businesses. The Department for Business Innovation and Skills (‘BIS’) published their research paper this month in relation to a large scale telephone survey of small businesses (‘SME’s’ – businesses with between one and 249 employees) conducted between July 2015 and January 2016. Here is a link to the survey https://www.holmes-hills.co.uk/wp-content/uploads/attachments/bis-16-227-sme-employer-report.pdf.

The main aims of the survey are to collect a range of information on SME’s such as;

1. The characteristics of SME’s;
   
2. The characteristics of their owners and leaders;
   
3. Recent turnover and employment growth;
   
4. Capabilities (in terms of their ability to innovate, export, train staff, etc.);
   
5. Experience of accessing finance;
   
6. Use of business support;
   
7. Expectations to grow turnover and employment; and
   
8. The major obstacles that prevent SMEs fulfilling their potential.

In terms of the information collected on the obstacles facing SME’s, the survey showed that 49% of SME’s found competition was an obstacle, 43% stated tax as an obstacle, 33% stated late payment and 32% cited staff recruitment/skills.

Late Payment is an issue that the government has attempted to address previously by way of the Late Payment of Commercial Debts (Interest) Act 1998. This act provided that in relation to late payments in the business context, debtors must pay creditors statutory interest (currently 8% above base rate) and a reasonable amount in respect of recovery costs (compensation). It is however apparent that late payment is still an issue with 20% of SME’s stating that it is a big problem, 41% stating that it is a small problem, and only 38% stating it is no problem at all.

Late payments can undoubtedly impede a business’ ability to not only survive but to grow. When things get tight for businesses, there is a tendency to withhold payments to other businesses in order to ensure ones own financial position remains healthy.

If you run a business and require advice or assistance with late payment issues, please contact Sara Thompson in relation to Holmes & Hills’ fixed-fee debt recovery service, or click here to see the brochure.

Our service separates the debt recovery process into three stages of escalating seriousness, and there is a single fixed fee associated with having a specialist debt recovery solicitor implement each stage on your behalf. Fees start at £50 + VAT (depending on the value of the debt) for a letter before action and a follow up telephone call. There is no commission payable on the amount recovered, we will always seek to recover our costs from the debtor.

The fixed fee structure of the service puts you in a position from the outset to decide how much you wish to invest in chasing a client for payment of the debt. This may depend on the amount of money owed and the circumstances of the debtor. Your Holmes & Hills debt recovery solicitor will advise and guide you at each stage of the process.