Small businesses chasing payment for overdue invoices achieve significantly better results by sending solicitor’s letters, known as a letter before action (LBA), according to new research from fintech firm Ormsby Street. Two-thirds of LBAs sent will result in a small business being paid within seven days, while two-thirds of overdue invoices will remain unpaid after one month if no LBA is sent, according to the research conducted across Ormsby Street’s 30,000-strong customer base. With the average time for an invoice to be paid to a small business standing at 72 days, and the average amount of an overdue invoice more than £6,000, late payment is a major issue for many small businesses in the UK.
“Going to court over late payment is really a last resort, but a solicitor’s letter is a highly effective method of retrieving payment on overdue invoices,” said Martin Campbell, MD, Ormsby Street. “Many small businesses have been put off using LBAs, believing them to be costly and time consuming. That’s why we are making it much easier for small businesses to send a LBA via CreditHQ.”
The findings suggest that the sending of a solicitor’s letter typically results in money being paid around 21 days sooner than taking no action. However, the cost of sending such a letter can be up to £50 if a small business simply engages their solicitor, a prohibitive cost for most SMEs.
“Without exception, a well worded LBA sent by a professional and reputable law firm has a significant impact in bringing payment to the fore. It gives a debtor notice that court action will be taken if payment is not made by a specified date, and the fact that the letter is sent by a law firm makes the debtor feel that the case is much closer to court, and in a large proportion of cases prompts payment. The benefit of CreditHQ is that extremely competitive fee structures have been agreed because of the volume of referrals that pass through it.”
“Late payment can be hugely stressful for any small business owner and they need to do all they can to protect themselves against this. Knowing who is likely to pay late and establishing different payment terms is the best option to prevent it, but for any small business already suffering from late payment, sending an LBA is a great way to indicate to customers that you’re on top of your business and that you expect to be paid on time.”
“In a world where cash is tight everywhere and accounts departments at customer firms seem to think it’s their duty to break contracted terms in order to hang on to cash a few days longer, it’s a great way to indicate gently but firmly that you expect a customer to pay on time.”