In General

The Law Society has warned that small and medium sized enterprises (SMEs) could do more to avoid cash problems caused by late payment from customers. It is expected that the forthcoming increase in VAT will cause further problems for cash strapped businesses.

The Society have said that there are safeguards available to protect against blocks in cash flow but they are currently being overlooked.

Robert Heslett, president, advised: “Average commercial debts caused by late payments are high in the UK, and for SMEs a lack of cash flow can be crippling. With credit less available to those businesses from banks, late payments have a far more serious consequence for SMEs. Considering the amount of red tape SMEs and start-ups are faced with, it is no surprise that seeking protection against late payment from customers does not come top of the to-do list. However, it could be the difference between the business surviving or not, especially in the uncertain economic climate.

He continued: “A carefully worded contract drawn up by a solicitor between a business and their commercial customers can include clear terms on late payments, including penalty clauses and strict time frames for payment. Such terms can act as an effective deterrent for late payment and encourage timely payment for services, thus avoiding these terms coming into play.”

Mr Heslett concluded by advising SMEs they have options other than court when customers fail to pay up. He said: There is a presumption that going to court is the only course of action when late payments cannot be resolved. However, many solicitors specialise in ADR and mediation, which can prove an effective way of solving the problems for SMEs and other businesses. ADR and well-drafted contracts can be effective in avoiding the last option, going court.”

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