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Could this law be doubled edged?

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10 months 2 weeks ago - 10 months 2 weeks ago #3728 by Momentum
Hi, Guys

Looking thro' some previous posts.
They appear to state that when a customer pays an invoice late (say just a few days late for £100) then they can charge the late payment of £40 for each invoice paid late (going back up to 6 years).

Let us assume that a customer has ALWAYS paid these invoices net month (therefore ALL outside 30 days), no one has complained and its 8 invoices per month ALL paid. These invoices have no payment due date and no agreement has been made regarding payment terms.

Let us assume the supplier reads about the law and don't care if they upset customers.

Could they hit the customer with the following late payment fee.
i.e. 8 (invoices/month) x £40 (compensation) x 60 (months) = £19200

I don't think that would be within the spirit of the act; however, it is a worry!

Any comments.

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10 months 2 weeks ago #3730 by j.salmon@cpa.co.uk
Yes they could and that would indeed be in the spirit of the act.

The purpose of the act is to encourage customers to pay on time and recompense suppliers when they are not.

If the customer had paid on time then the the supplier wouldn't have a claim.

The customer might use the threat of withdrawing business to stop a supplier asking for payment of the late payment charge.

However that supplier then has to spend time chasing payment, they have to employ credit controllers and they have cash flow costs caused by that late payment.

However that liability is hanging over the head of business customers.

You can't use the goodwill to get away with late payment because eventually when that relationship ends, the supplier can turn around and ask for that compensation.

Knowing this, nobody should want to pay late, nobody should view late payment as the cheapest form of cash flow.

If they need cash flow, they should use their bankers and not abuse their suppliers.

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10 months 2 weeks ago - 10 months 2 weeks ago #3733 by Momentum
Hi James, thanks for the quick response.

Are you sure this is correct?

I run a small business and this is a typical customer for us, in fact some pay in the first few days of the month following the net month (so some have gone over 60 days). An I must say that WE pay net month regardless of a supplier's terms, unless they insist on earlier payment - so we are just as guilty.

My customer's are mostly small businesses and could go under with a bill of 19200 each, this is a type of PPI for them.

I have concerns about how this law could be used and as a result see it been taken away from us.

Kind regards
Dave

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10 months 2 weeks ago #3734 by j.salmon@cpa.co.uk
Hi Dave,

Yes I am sure this is correct.

I would certainly recommend you start paying your suppliers on time. Paying late, if only by a few days is (a) not right or (b) potentially expensive.

If you want to pay later, get your customers to agree to the later payment date. Don't just take advantage of their goodwill. It might evaporate.

The money should be in your suppliers account on the due date. So you probably need to arrange payment a few days before.

Really, I would reccomend paying an invoice as soon as it is approved. Don't make your supplier wait for payment on goods and services you have already had.

You expected them to supply as soon as possible, so why not pay as soon as possible.

But believe me this is the purpose of the law. To speed up payments and break the Late payment culture in this country that kills 50,000 small businesses a year and damages our productivity.

Imagine a world where business owners didn't have to spend more time chasing payments than they do on providing services. Think how much more productive we would all be if cash could be made to move faster through the system.





Don't push payments to the limit,

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10 months 2 weeks ago - 10 months 2 weeks ago #3735 by Momentum
Hi, thanks for the quick response

Please don't get me wrong I only have a handful of suppliers were I technically pay late (30 days net month) the rest are agreed terms anywhere between upfront, Direct Debit and 30 days net. I will certainly take your advice and start paying the others in 30 days, and hope they don't read my previous post.

Kind regards
Dave

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10 months 2 weeks ago #3737 by j.salmon@cpa.co.uk
Hi Dave,

You are hardly alone. it is the prevailing culture in business.

But we are hoping it will change.

We had to change ourselves. We didnt think of ourselves as late payers. We used to pay everybody on the due date.

At least we thought we did. What we actually were doing was arranging payment on the due date but that usually meant our payment was arriving late.

So a few years ago we recognised that we needed to completely change our practices.

Now we have a policy of paying all invoices as soon as they have been checked, approved and auithorised.

No more do we sit on them for weeks using our suppliers like a bank.

Where possible we pay suppliers by bank transfer, so we know the funds have arrived and a cheque isn't delayed or even lost in the post.

Some of our suppliers from years back could have a claim against us for compensation but hopefully within a few more years that risk will have almost completely evaporated.

Our hope is that the legislation will do it's job and others will imitate us, to avoid potential claims.

It's only by paying on time, - which means the money has ARRIVED - on or before the due date - so actually by arranging payment early that you can avoid that sword of Damocles swaying over your businesses head.

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