With covid restrictions gone, is late payment back to normal? Depressingly, yes

The enthusiastically waved-off yet still stubbornly lingering covid-19 pandemic dealt a hammer blow to efforts to finally reform the UK’s insidious late payment culture.

Indeed, just months into what was of course primarily a health crisis, the Federation of Small Businesses (FSB) complained that reforms to fix the late payment culture, which the government vowed in 2019, have been “consumed” by Brexit, a general election, and now a pandemic”.

Turmoil, delay, suffering

With the current turmoil in Whitehall’s corridors of power, contractors and others depending on getting their invoices paid promptly are unfortunately yet to see any signs of those reforms to fix late payment culture resurfacing, writes Adam Home, senior credit manager at Safe Collections.

What’s more, late payments got worse during the pandemic. According to FSB research, 62% of small businesses experienced either an increase in late payments or had payments owed to them – for services actually rendered – completely frozen.

You could say this is to be expected in the middle of a global crisis that saw tens of thousands of businesses temporarily cease, or at least severely reduce trading. Everyone suffered. Being paid a few weeks late was the least of anyone’s worries. Right?

Policy made late payment problems worse

Well, maybe but we shouldn’t turn a blind eye to the role policy had to play in increasing late payments, in terms of it being an endemic problem.

One of the government’s flagship decisions to support struggling businesses through coronavirus lockdowns was to suspend creditor’s ability to chase overdue payments through legal channels, including serving statutory demands for payment and winding-up petitions.

Other measures included removing the threat of personal liability for wrongful trading for directors who try to keep their companies afloat through the emergency, and introducing a new restructuring protocol within insolvency procedures that creditors would be bound to accept.

Damaging protections (cont.)

While these measures were presented to the public as ‘protecting hard-working businesses’ from the aggressive actions of large creditors like banks and landlords, what the government failed to consider was the impact on smaller businesses. In effect, the moratorium on creditor action served as a licence for some unscrupulous business owners to ignore payment terms – as if they pay late, there is little a supplier could do.

Moreover, during what were unprecedented times, we saw small enterprising suppliers locked into continuing to provide a service, even if they didn’t believe there was a realistic prospect of getting paid!

Where are we now on late payment, with covid restrictions lifted?

All temporary insolvency measures introduced during the pandemic have now been lifted. In theory, we should be back to where we were in 2019 on late payments. We should be making clear progress in the battle to get suppliers paid fairly on time.

But as thousands of contractors out there will know, things aren’t so rosy. With the cost of living crisis piled up on top of the fallout from the pandemic, the economic outlook remains gloomy. Businesses continue to struggle with cash flow and insolvency rates are way up on what they were pre-pandemic.

It’s noteworthy that the majority of insolvency cases involve liquidations. In many ways, all the covid measures have done is delayed the pain of thousands of struggling businesses going to the wall. Having had limited legal options for recovering overdue payments for 18 months, contractors are now watching on -- as the agencies and firms that owe them money go under.

Contractors, sorry, you’re still last in the line, amid a 74-week wait

As every contractor knows, as unsecured creditors, contractors are invariably last in line when it comes to getting a share of a liquidated company’s assets.

And while you can of course take action to pursue a late payment, don’t expect a swift resolution if you do end up going down the legal route! A well-publicised backlog in court cases (exposing the impact of a decade of funding cuts for the legal system), means that the hearing to get what you feel is owed are in some cases being delayed for months. In fact, there  is currently a seventy-four week wait for some multi and ‘fast-track’ claims to get their day in court.

Practical tips to help get paid promptly as a contractor

So what can you do? Our recommendations contractors is this – be extra vigilant about your own credit control, and do not assume that you can fall back on legal enforcement ‘if’ (but more like ‘when’) a payment doesn’t come through as expected.

In the first instance, take greater care who you work for. Do your ‘due diligence’ and don’t take any chances accepting a contract if you suspect an agent or end-client is in a less than stable financial position.

Remember, the pandemic may have been beaten back but there are a lot of struggling businesses out there today, and contractors are often the first to suffer when cashflow is tight, as they are seen as an easy target for delaying payment.

So, get credit reports on anyone you work for, and ask around in the industry for any feedback. Furthermore, when not direct to client, try to remain ‘opted in’ to the Employment Conduct Regulations, for their added protection. Keep in mind, this ‘opt in’ ensures employment agencies cannot delay payment to you if the end-client does not pay.

Lastly, nudge, chase, escalate, and leverage

After that, it’s simply a case of keeping a close eye on payments! Don’t delay nudging if a payment does become late. Chase immediately and keep chasing, as the risk of not getting your money increases every day you are not paid.

Finally, if you are not getting anywhere, don’t be afraid to escalate. That doesn’t mean running straight down the legal route – speak to the agency and if necessary, a debt recovery firm might be your best chance of getting your money. This is especially the case if you have a stubborn non-payer and don’t want the massive 74-week wait in going to the courts. Very finally, leverage all the means at your disposal to get the money you are owed -- paid, such as applying interest for each day it is overdue, and demanding the compensation fees you are entitled to by law. Don’t forget, this is your money -- money for your hard work which your company is owed, making it yours and nobody’s else’s.