A debt recovery expert in Stoke-on-Trent has outlined the steps local businesses should take to chase outstanding payments effectively, without damaging important commercial relationships.

Late payments continue to place significant pressure on the UK economy, with recent figures suggesting they cost almost £11 billion a year and contribute to 38 business closures every day.

The issue is relevant in Stoke-on-Trent, where the latest ONS business counts show there are 6,700 registered enterprises, around 99 per cent of which are SMEs.

With only 40 large enterprises recorded in the city, payment practices among larger organisations can have a significant knock-on effect across a local economy dominated by smaller firms.

According to Claire Twells, Partner and Head of Debt Recovery at Smith Partnership, a Midlands-based law firm with an office in the heart of Stoke-on-Trent, the issue often stems from larger businesses using extended payment terms to protect their own cash flow, creating a knock-on effect across the wider supply chain. 

Claire, who leads Smith Partnership's Debt Recovery team, said larger organisations need to be particularly mindful of how late payment affects smaller suppliers and businesses further down the supply chain.

1. Know who you are contracting with

Claire said: "The most important step is to know who your debtor is.

"Many businesses do not fully understand who they are contracting with. They may think they are dealing with a particular company, only to later discover that the company does not exist, has changed structure or has ceased trading.

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"Businesses should carry out checks at the beginning of the relationship. That may include checking Companies House, confirming the correct company name, identifying directors and carrying out credit checks.

"They should also collect the right information at the outset. If the debtor is a limited company, ask for relevant details when the relationship begins. It is much easier to obtain that information at the start than six months later when invoices are unpaid and the debtor has stopped engaging. This information will help later as part of the collection process." 

2. Have clear and concise payment terms

Claire said: "Businesses need to understand which terms apply, what the contractual position is, and what remedies are available if payment is late.

"Small businesses must be confident in setting out when they expect to be paid. If payment is due in 30 days, they should not be afraid to chase payment soon after 30 days.

"There is often concern that chasing payment may damage a commercial relationship, particularly when the debtor is a large or 'important' client. But if you are not being paid, you are effectively working for free.

"Businesses should know when payment is due, whether interest can be charged and whether the Late Payment of Commercial Debts legislation applies." 

3. Put a clear internal recovery process in place

Claire said: "Many larger businesses do not have sufficiently clear internal credit control processes. What they make up for in size, they can sometimes lack in procedure.

"Debts can become lost within internal systems. One person may assume another department is dealing with it, or no one may take ownership. Even where a process exists, it is not always followed consistently.

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"A clear credit control process is therefore essential, but it must sit alongside clear terms and conditions.

"That process should set out when letters will be sent, when calls will be made, and when the matter will be escalated." 

4. Follow through consistently and escalate when needed

Claire said: "A common mistake is threatening action and then failing to carry out that action.

"If a business tells a debtor that it will issue proceedings if payment is not made within 30 days, but then waits six months and does nothing, that undermines the process.

"If a business says it will take action, it needs to be prepared to do so. Businesses should seek legal support immediately after their internal process has come to an end.

"If the business has written to the debtor, made calls, followed its credit control process and still has not been paid, then it should do what it said it would do – go legal!

"The key is consistency. A clear and concise internal process should lead naturally into legal action where payment is still not made."

For support with debt recovery issues, contact Claire on [email protected] or 01332 225206.

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