Our first anonymous question for this area! A member wrote to us to ask:
“I have started doing contracts for a local council last year and they have always been quite slow. Since the pandemic this has got much worse and they now owe us several months of invoices. I don’t want to damage our reputation with them as this is a big contract but this is causing us real problems in terms of our cashflow. Do you have any advice?”
This is always a difficult one. Ultimately though you do need to chase them quite firmly as the longer this goes on, the worse this will be for you. Over the years, I have had NHS organisations take 3 or 4 months to pay an invoice and I have seen social enterprises collapse just because of bad public sector payers.
The first thing I would do is make it clear on your invoices that there are payment terms and penalties. I have used the following for the last 15 years:
Payable within 14 days
In line with Statutory Instrument 2002 No. 1674 (The Late Payment of Commercial Debts Regulations 2002), if payment is not received within 14 days then a statutory penalty of £70 plus interest at 13% will be applied.
What that means is that after 14 days, you can start adding penalties. So if after a month, a £1,000 invoice becomes a £1,080 invoice. Bizarrely finance departments get the most bothered by this because your purchase order would only be for £1,000 and so paying £1,080 against this causes the financial systems to set off major alarms.
In my experience, I would initially (politely) nudge the main contract person you deal with and ask them to nudge the finance department. After a month I would contact the finance department yourself and chase them up (politely) once a week. If after another month nothing has happened then I would raise this with the head of the finance department and say that if this can’t be resolved that you will go to the small claims court. I have had to do this twice in my career and once I even had to send bailiffs in to a very wealthy organisation who just didn’t pay invoices.
But might they just cancel a contract with you if you upset them and ring the finance department?
Hi Sally, it’s unlikely that they would cancel a contract because you chased them regarding payments outstanding unless you went full on mafia with them!
I TOTALLY understand the concern that you have, but if you approach this with a firm but fair approach, using relevant contract clauses which have already been agreed by them, then there would be no reason for them to cancel the contract.
It’s worth remembering that the council will have MANY contracts out there, of which yours is just one, and so unless your technique of encouraging invoice payment involves a horses head on the account managers pillow, you should be fine. After all, it is money owed to you for services delivered.
I would also directly ask them whether they are querying the invoice - in most cases they aren’t, but it is useful to have this confirmed. It can be useful (but sometimes nearly impossible) to talk to someone in the accounts team by phone and directly as for their help - if you are a social venture or an SME and this is directly affecting your cash flow (and the delay is clearly outside the agreed terms) then I would mention this.
Thanks for the advice everyone