SMEs still under threat from late payment culture and commercial disputes

A new survey of hundreds of SMEs has found that late payments continue to cause serious concerns for six out of 10 small businesses across the country, with more than 40% believing that the delays in receiving vital revenue are putting the future of their business at risk.

Many are being forced to put plans to invest and expand on hold, while others are incurring mounting debts through the use of overdrafts, and having to pay their own suppliers late – creating a vicious circle which shows little sign of being broken. Yet despite the damaging impact on businesses, fewer than one in four were prepared to take legal action to resolve the problems – with costs, length of time, the hassle of the process, and concerns about losing clients’ business given as the main reasons for not pursuing the legal route.

The worrying picture was highlighted in the survey carried out by commercial dispute resolution service Escalate, which found that 96% of SME respondents regularly experience bad debt or other commercial disputes, with half frequently made to wait at least 60 days for payment.

The issue of late payments and other unresolved commercial disputes has recently been building momentum, with leading industry bodies launching campaigns to raise awareness of the problems, and the Government unveiling plans to improve the culture around payment practices. But it’s clear from these findings that the increased focus has so far failed to improve the situation. Less than five per cent of respondents said that instances of late payment and other commercial disputes have declined over the past five years, with 41% of SMEs experiencing an increase in late payments and other commercial disputes.

Other key findings include:

• almost seven in 10 of those surveyed were affected by late payments from clients beyond their agreed terms of business
• half are frequently made to wait at least 60 days for payment
• 57% of respondents experienced at least one instance of non-payment in the past 12 months
• more than one in five SMEs had experienced a recent case of breach of contract
• only 23% of respondents have taken legal action to try to resolve late payments or other commercial disputes
• of the rest, 80% are forced to spend time and effort persuading clients to pay up, often threatening to withhold services (44%), take legal action (36%) or charge interest (27%) to make their point.

The survey sets out seven main steps that SMEs can take to either protect themselves against the prospect of late payments and commercial disputes or to secure the quickest and most effective resolution when these situations arise – which is where Escalate can help.

Escalate is a multi-award-winning process that is transforming how SMEs tackle commercial disputes. Pursuing a commercial dispute can be a costly, lengthy and risky undertaking. This nationwide network of partner firms is committed to resolving late payment issues and commercial disputes – with a focus on intensive negotiation to try and reach a settlement within three months – enabling SMEs to gain access to justice through dispute resolution and, if necessary, commercial litigation.

So far Escalate has already helped to unlock £50 million of cash for businesses in a variety of disputes, and have reviewed 300+ cases to date.

To find out more about how Escalate can help your business, contact your Price Bailey partner; and to learn more about the late payment issues and commercial disputes affecting SMEs, and the steps you can take to protect your own business, download your copy of Time for change: Late payment and commercial disputes 2019 survey results.

This post was written by Partner Matt Howard, at Price Bailey. If you would like more information on this article, please contact Matt using the form below.