The squeaky wheel gets the most oil. This is true in many situations, including debt recovery. The fact is that when cash flow is limited, not everyone can be paid on time, and those who wait patiently are often the ones to miss out, falling to the back of the queue for payment. This can have serious, and sometimes irreversible, consequences.
Research undertaken by Amicus Commercial Finance found that around 70% of SMEs rely on prompt payment to maintain working capital. Indeed, 10% of SMEs fear being forced to close due to late payment. The same research found that 18% of SMEs had lost contracts as a result of cash flow problems, many struggled to pay debts (30%), suppliers (41%) and even staff (24%). Around 60% of SME invoices are paid late, with around 16% remaining unpaid after 90 days.
Engaging a law firm at an early stage to chase unpaid invoices can have a very real impact on the speed of payment and does not have to be an expensive exercise. In the experience of our specialist Debt Recovery team, the vast majority of debtors will pay on receipt of a Letter Before Action from a firm of solicitors.
It often surprises me how reluctant businesses can be to chase debtors or to escalate the issue by engaging a law firm. One explanation we often hear is that the debtor is a “good customer”; so it seems that the reluctance to chase a debtor may stem from a fear of rocking the boat. However, given the potential damage that can be caused to a business by late payment, can a tardy payer ever really be a “good customer”?
It seems, therefore, that receiving a letter demanding payment from a reputable law firm will often result in an unpaid invoice being pushed to the front of the queue, which is good news for the business, its employees and suppliers.