Introduction

This guide for SMBs explores strategies to prevent late payments from public sector clients and what recourse is available to you.

Research by Payit found that 27% of SMBs in the UK are owed between £5,000 and £20,000 in unpaid invoices.

Late payments can significantly impact small and medium-sized businesses, impeding operations and disrupting cash flow. Not to mention the time and resources SMBs have to put into chasing unpaid invoices.

If this sounds familiar, then keep reading.

Our guide uncovers actionable strategies to help your business prevent future late payments. We’ll also offer advice on how to claim compensation for these delays, so you can continue to grow your business. 

When Is a Payment Considered Late?

Generally speaking, a payment is considered late if you don’t receive it by the due date agreed upon in the payment terms or contract. However, UK legislation lays out specific provisions related to payment terms for contracts with public sector authorities.

Under the Public Contract Regulations 2015, public sector organisations must pay all non-disputed invoices within 30 days of receiving them (unless another agreement has been made in the contract).

It’s important to note that this payment window extends to sixty days in certain circumstances, such as if both parties have agreed to a longer payment window.

Further reading: How to tell if a payment is late under UK law 

So what happens if a public sector organisation doesn’t pay the supplier within the agreed-upon timeline? 

In this case, the supplier can claim late payment compensation to make up for any losses in revenue and disruptions to business operations.

Has your business received late payments from the public sector? You may be entitled to claim compensation for each late invoice.

Check your eligibility now with our free checker

Now let’s look at some late payment tips for small businesses.

How to Avoid Late Payment From the Public Sector

Knowing that your business can claim late payment compensation to minimise the impact of unpaid invoices is a great source of peace of mind. However, prevention is always the best option.

Here are some ways SMBs can avoid late payment from the public sector.

1. Define clear payment terms

Before your business begins providing goods or services to public sector bodies, make sure you agree upon clear payment terms. These should include specifics about the following:

  • Payment timelines and due dates
  • How payments should be made
  • Communication processes in the case of late payment
  • Clear protocols for disputing invoices or handling late payments 
  • A system on how to record payments

Having this information clearly defined ahead of time is the best way to prevent late payments and maintain a good working relationship. Additionally, it reduces any potential confusion about each party’s obligations and expectations.

2. Improve communication channels

As any SMB knows, chasing clients for payment is frustrating and time consuming, especially large public sector bodies. At the same time, regular communication can help to keep clients on track with payments and ensure nothing slips through the cracks.

So, what’s the solution?

Finding ways to automate payment reminders streamline the “chasing” process immensely.

For instance, try scheduling automated reminders to clients about upcoming payment deadlines and missed payments. Of course, it’s important to ensure these communications don’t replace regular check-ins, especially when it comes to large sums of money. But in general,  automated reminders can be a good way to show clients you are on the ball with payments.

3. Make sure your invoices are correct

Incorrect invoices are one of the biggest payment hold-ups for businesses. Fortunately, this is something you can control on your end.

Always ensure that invoices are correct and that you thoroughly break down every element. While this may take a little longer, it can save you substantial time chasing clients and re-doing invoices. It also reflects well on the professionalism of your business.

You may want to invest in an invoice management tool to optimise the invoicing process and reduce errors.

4. Streamline the payment process

It’s natural for processes to move slowly in large public sector organisations, which impacts how quickly your business receives payment.

But there is a way to accelerate this process.

Creating an easy payment process for your public sector clients can reduce the time it takes for them to approve and make payments. For example, offer several payment options so they can choose the quickest and most convenient option for them.

5. Keep detailed records

Good bookkeeping is essential for any business, but it becomes especially crucial if your clients are consistently paying you late. So, take time to put a process in place so that you can track late payments and the impact they’re having on cash flow.

That way, you can clearly see who is paying you late and how those unpaid invoices are affecting your cash flow.

This means you know when it’s time to take legal action or make a late payment compensation claim.

It also allows you to quickly resolve any disputes, as you have clear and detailed records of every payment delay and the communication your public sector client has received from you.

Next Steps

Consistent late payments can have a devastating effect on your business, draining resources and putting you in an awkward position with your client. Many SMBs worry about chasing their public sector clients too hard in case they lose them. As a result, they deal with the consequences of these untimely payments.

The good news is that your business is protected under UK law. If your public sector clients are paying you late, you may be eligible to claim compensation. This compensation can mitigate some of those consequences and prevent cash flow worries. 

Try our free eligibility checker today to see if your business is entitled to compensation.

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