An increasing number of businesses are turning to the law to tackle the scourge of late payment and reduce their losses, research finds.

An increasing number of businesses are turning to the law to tackle the scourge of late payment and reduce their losses, research finds.

According to the latest quarterly figures from debt recovery law firm Lovetts, the number of legal claims for overdue payments rose by 16.6 per cent between July and September, compared to the previous quarter.

Furthermore, businesses are chasing smaller debts through the courts rather than writing them off as they may have done in the past, with the average claim size having fallen by 15 per cent quarter-on-quarter.   

Charles Wilson, managing director of Lovetts says, 'As economic recovery continues to falter, we're seeing more businesses taking a harder line on late payment to protect themselves from the risk of bad debt. There are many headlines about late payment being the biggest risk facing small businesses, and that message certainly seems to be spurring firms on to exercise their legal rights much more than before.  

'However, we’re concerned to see that businesses are waiting too long to take action. Our figures show that the average time between invoice and a Letter Before Action being issued is much higher than it should be.'

Wilson says that there has been a noticeable increase in invoice age. In the past quarter, he says that 43 per cent of Lovetts clients have passed invoices for legal process collection which stand at over 100 days old, whereas in the previous quarter, the figure was 40 per cent. 

He adds, 'It is vital that in order to take advantage of the Late Payments of Commercial Debts (Interest) Act 1998, businesses need  to get their terms and conditions right, by stating clearly that the full cost of any debt recovery activity on overdue payments will be added to the invoice.

'At the start of any new commercial relationship, businesses should make it clear that clients are expected to pay on time, including details on how any overdue payments will be dealt with, to strengthen any claims later down the line.'

See also: ‘Bad debt’ costs small business billions