27 minute read
The late payment of commercial debts
The late payment of invoices can be costly to a business, and it is important to take steps to recover monies owing. By Paul Rooke, Associate Solicitor, Litigation, Mayo Wynne Baxter
If, after chasing for payment, the debtor has failed to pay invoice(s) owing then a business should take action to seek recovery of the monies owed.
It is important to be proactive in chasing any invoices that are due or about to become due. If, however, payment is not forthcoming after chasing there is legislation in place to allow a business to be compensated for the late payment. The Late Payment of Commercial Debts (Interest) Act 1988 (the Act) inserts a term into business-to-business contracts for the supply of goods and services that, in most cases, allows a business to seek interest, a fi xed sum and its reasonable costs.
❛❛ If payment is not forthcoming there is legislation in place to allow a business to be compensated for the late payment ❜❜
INTEREST The Act provides that, subject to when the contract was entered into, interest at 8% over the Bank of England Base Rate can be added to the invoice after 30 days. It is possible to claim interest on invoices going back over the last six years that have already been paid, provided that the invoices were paid late.
COMPENSATION The compensation payable is fixed according to the size of the debt and can be claimed on each overdue invoice
Invoice up to £999.99 £40 per invoice £1,000 - £9,999.99 £70 per invoice Over £10,000.00 £100 per invoice
It is possible to claim compensation on any invoice paid late even if the invoice was subsequently paid. REASONABLE COSTS If a business incurs costs over and above the amount provided for by the compensation amount, the Act provides that the business can claim the reasonable costs of recovering the debt. For example, a business can seek to recover the costs of instructing a solicitor or debt collection agency.
SEEKING RECOVERY If, having chased the debtor, no payment is forthcoming but before issuing court proceedings a letter of claim setting out the basis of your claim should be sent to the debtor. Such a letter should be complaint with the Pre-action Conduct and Protocols.
If no reply is received within 14 days, court proceedings can be issued seeking recovery of the unpaid invoice(s) together with the interest, compensation and reasonable costs owed pursuant to the Act.
It is important to note that if any overdue invoices are over six years old then it is highly unlikely that you will be able to recover the monies owed. Accordingly, a business should not wait to seek recovery of any unpaid invoices.
For more information visit: www.mayowynnebaxter.co.uk
INFLUENCERS FORUM
Getting the supply chain right is a make or break for companies, especially in the modern world where consumers expect to receive goods quicker than ever before. An efficient, optimised supply chain is incredibly important to the fulfilment of customer orders for any company, but when managed correctly, it can also result in much lower costs and a faster production cycle.
Supply chain management, or SCM, is the umbrella term that covers product development, sourcing, production, procurement, logistics, and more when it comes to operations in the supply chain. Without it, companies run the risk of reducing their customer base and losing a competitive edge in their respective industries.
Efficient supply chains work with an effective returns process. It has been found that customers are 71% more likely to become repeat customers if they’re happy with the way their return process was handled. To help us understand the issues involved in this cycle, I’m delighted that we have a team of experts in the field of supply chains.
We have Julian Shaw, supply chain consultant; Dave Ford, Deputy Regional Director, with HSBC UK; Beverley Flynn, Head of Commercial and Technology team at leading law firm Steven and Bolton; Andrew Tate, Head of the Restructuring and Transformation team at Kreston Reeves; Rupert Moyle Head of the VAT and Duty team at Kreston Reeves; and Julie Kapsalis, Chair of Coast to Capital Local Enterprise Partnership and CEO of the Chichester College Group.
Welcome all to the influencers forum.
BEVERLEY FLYNN
Head of Commercial and Technology Stevens & Bolton
Beverley leads the commercial and technology team at Stevens & Bolton. She acts for clients in the logistics IT, retail, manufacturing, life sciences and energy sectors drafting and negotiating commercial contracts and advising on logistics, warehousing procurement, fulfilment, IT and ecommerce related matters
beverley.flynn@stevens-bolton.com www.stevens-bolton.com
DAVE FORD
Deputy Regional Director HSBC UK
Dave Ford leads a team of Trade Directors who specialise in working capital solutions for customers importing and exporting around the globe. His has worked for the group for 34 years, leading businesses in the Retail, Commercial and International segments of HSBC.
dave1ford@hsbc.com www.hsbc.com
ANDREW TATE
Head of the Restructuring and Transformation, Kreston Reeves
Andrew has over 25 years’ experience in restructuring and transformation and has particular sector expertise in technology, financial services, retail and property. He has an interest in pension scheme issues and is a member of the Employer Covenant Working Group. Andrew is a board member of Insol International, a global insolvency body.
andrew.tate@krestonreeves.com www.krestonreeves.com
JULIAN SHAW
Supply chain consultant
Julian is a highly experienced and financially astute Senior Director/VP Supply Chain with experience in all leading verticals, with a focus on Technology, Supply Chain, Logistics, Customs Clearance, IT, WMS and ERP. Julian is a Chartered Member of the Institute of Logistics and Transport and has over 25 years experience in Supply Chain, Logistics and Customs Brokerage .
T: +447591330315 (UK) www.linkedin.com/in/jrsshaw
RUPERT MOYLE
Head of the VAT and Duty, Kreston Reeves
Rupert has specialised in VAT for over 30 years and has a broad range of experience, having advised small to medium sized owner-managed businesses, multi-national large corporates, entities involved in international services/goods and those in the property sector. He has considerable experience advising charities and other notfor-profit organisations. Rupert is Chair of Global and Indirect Tax at Kreston Global.
rupert.moyle@krestonreeves.com www.krestonreeves.com
JULIE KAPSALIS
Chair of Coast to Capital Local Enterprise Partnership and CEO of the Chichester College Group
Julie is Chair of Coast to Capital Local Enterprise Partnership and Managing Director at Chichester College Group – supporting over 20,000 learners across five campuses. Julie has worked in economic development for over 20 years with a particular focus on enterprise, skills and social inclusion.
julie.kapsalis@chichester.ac.uk www.chigroup.ac.uk
LESLEY ALCOCK
Commercial Director, Platinum Media Group
www.platinummediagroup.co.uk 07767 613707 lesley@platinummediagroup.co.uk
MAARTEN HOFFMANN
The Platinum Publisher
Maarten Hoffmann is the facilitator for the Platinum Influencer Forums
Andrew, how does the supply chain get disrupted?
AT: I think that at the moment we’re seeing some unique factors which are disrupting our supply chain. Supply chains can get disrupted in any event by, for example, the failure of a key supplier, or the inability of a key supplier to be able to supply as they need to. At the moment what we’re seeing is a unique set of circumstances because of the disruption caused by Covid. This has also been exacerbated by Brexit. The two combined has led to an inability to function properly as a supply chain for our needs.
How much is the Covid problem hiding the impact of Brexit?
AT: It’s a good question. I think that Covid has certainly had a massive impact on the supply chain and that Brexit has really been the icing on the cake. We would have had some disruption already to our supply chain with Brexit, if Covid didn’t occur, but I would say it’s probably weighted 60/40 Covid to Brexit from what we have seen.
JS: I definitely agree. I don’t think supply chains were disrupted by Brexit as much as Covid. Most of our goods are largely imported from Asia, so the business that came through Asia wasn’t affected: Brexit made no difference whatsoever. The European business that’s been coming in has been absolutely decimated by Covid and Brexit in the first part of this year, however. It’s starting to get better now though, with goods moving through the Channel Tunnel and Dover albeit at a slow pace. Instead of day one delivery, for items going to Paris or Brussels, they’re now delivering the following day. They are one day later than they were before because of all the red tape and paperwork they have to do as a result of Brexit.
The place Covid really affected people was in manufacturing; supply chains were decimated when production lines had to space people out, responding to social distancing rules. There’s an enormous backlog which everybody is trying to catch up on, but the supply chain is still lagging behind, with containers being in the wrong places and sea freight rates being 4-5 times what they were. It’s a nightmare for importers from Asia at the moment. A lot of people are now looking to bring their supply chains nearer to source. A lot of companies are opening up their distribution operation in the UK, for UK only, and don’t bother to export anymore. They are then opening up a separate Distribution Centre somewhere in Central Europe to service the European market. Very few people are doing the one-stop European door-to-door delivery service that they used to do.
Dave, within HSBC, are you seeing huge disruption in the supply chain for your clients?
DF: Absolutely, it’s unprecedented. Particularly, as Julian was saying, around European or Asian origin of goods. We’re seeing shipping times extending, with queues to get into major UK ports. Some goods are being diverted into European ports and then road transported across, creating a larger congestion than there would have already been. A lot of our imported goods are manufactured in China, there has been huge disruptions because of their own power shortages, four-day working weeks and ports temporarily closing down: there’s no end to disruption for importers at the moment.
We are at the point that the costs of shipping sea containers has become hugely impactful. The question for the importer is what do they do with those costs? There is a limited ability to pass that on to the end user. There is a limited ability to be able to negotiate terms again with suppliers, and we’ve seen that a lot of customers are trying to negotiate now managing increased costs.
How does this work with with a finance cycle?
AT: I think it is a question of working with the supplier, because ultimately you can take a very harsh view and delay payments to the supplier because they haven’t performed on time, but that isn’t useful because they have also been disrupted by Covid. I think that the relationship between supplier and recipient in the UK has never been more important. Communication is the vital key.
Is that loss of money for the recipient causing a lot of problems all along the supply chain?
AT: Yes. Certainly, when thinking about how you can pass on those costs, it’s causing huge issues for some industries who aren’t able to pass those costs on. It’s a little bit like the energy companies, if your cost of supply goes up, but you can’t pass it on, your margins and cash flow are destroyed.
We see energy companies failing almost every day, is this going to happen to companies within the supply chain?
AT: I think it is happening in certain areas. Of course, we do hear that a lot of businesses took advantage of the lending that was available, CBILS for example, so actually they have a bit of a buffer from that point of view.
Beverley, are you finding this is coming up as an issue with your clients? Is there a legal side to this you’re being called in on?
BF: Absolutely. The key really is the relationship between the supplier and the customer, but the contract can also help. It depends on how the contract is drafted, whether you are complying with cost of goods, you’ve got fixed price, whether you’re using Incoterms, what your force majeure clause says; the devils is in the detail, I’m afraid. We are dealing with relationships where once in the past there may have been a sharing of the cost, but now some of the mightier buyers are starting to leverage their strength. To clarify, Incoterms are an industry set of terms and conditions. They have various different requirements depending which Incoterm you incorporate into your contract. This will dictate who bears the risk, who’s responsible for import and export duties, who’s responsible for unloading where delivery takes place, etc. So, they’re massively useful.
Is there going to be a tsunami of lawsuits?
BF: I wouldn’t like to predict such in any respects. I feel that businesses are resilient and customer-supplier relationships are strong. There’s an open door, but ultimately it is the contract that dictates the negotiation position.
DF: I think there’s another point, some of these relationships with suppliers span 30 years and that plays a big part around the negotiation. We are seeing businesses that have relatively young relationships with suppliers finding negotiation a little bit more difficult with suppliers now, calling for different terms. However, I do see an absolute ambition between global exporters and European and UK importers to continue to work together to find a solution to this. There are examples where manufacturers are asking for money earlier in the trade cycle, often as a deposit more than before. That means we are having new conversations with clients around how do you protect yourselves against that. How do you make that viable for your business, without the need to part with upwards of a £10,000 deposit and wait for an extended supply chain for those goods to ship, sometimes three to six months later?
With the supply chain being so vital, there’s not a lot of time to do these negotiations is there? Supply must keep on rolling.
DF: It does. We are, as borders open up more, expecting and being told by clients that they will return to China to continue negotiations. Traditionally, production teams would get together three or four times a year to look at the next shipments but as they haven’t been able to do that, they’ve had to rely on some of the more modern technologies to do it.
Rupert, what are the VAT and duty implications of all of this?
RM: You mentioned Incoterms earlier, the issue is that there are lots of different Incoterms, or even hybrid Incoterms. The point is that supplier and customer don’t actually talk and understand all the components of it and agree who’s going to do what. You have got contracts which were agreed before Brexit, which span past Brexit. These might, for example, have delivered duty paid Incoterms which, for a UK exporter, would mean that they have the responsibility to be the importer to the EU, that now gives them some compliance issues. I think the other issue that I’m seeing is the additional cost because of importing goods into the UK from China and then moving them out to the EU,
Is HMRC being a help or hindrance in this issue?
RM: I think HMRC have tried to be a help, they’ve issued a lot of notifications trying to train people what to do, but they have been predominately focused on importers into the UK, and not what happens if you’re trying to do business in the EU.
Julie, are you seeing supply chain issues in any of your roles?
JK: Yes, I’ve been at the receiving end of what many have said here. I reached out to colleagues in our growth hub that supports businesses and business membership groups within the area to understand their thoughts. What they came back with really echoes what others have said. I had feedback about the eye-watering increase of container costs; one business we work with was asked to pay £26,000 for a 40-foot container from China compared to £2,000 pre-pandemic. That’s wiped out any ability for profit, they are not large enough to have some negotiating weight and they are not in a position to suddenly pivot and do something different. One area we have seen recently is companies looking at setting up warehousing and logistics centres in the UK; businesses are looking ever internally compared to internationally. However, we can develop great warehouses, but if we haven’t got people to drive the heavy goods vehicles around we’re not going to be able to take advantage of those opportunities; we have to look at skills. JS: Currently it’s fantasy because we don’t produce economically and viably many of the things that people want to buy.
BF: Not even the fresh produce. I’m involved with a fresh produce business which aims to provide to the large supermarkets, and as a result of Brexit there were some supply chain issues when they were importing from the warmer EU countries.
Is that a viable move for the future, to greatly reduce the supply chain and revive our manufacturing capabilities?
Are these issues not building up in front of us, or is this getting sorted out as we go?
AT: I think it is getting sorted. It might get a little bit worse before it gets better because we’ve got all of the stock coming into various countries for Christmas which is going to displace the freight. After that goes through it will be ok.
DF: I agree. There’s some anticipation that freight rates may come down a bit towards the middle of 2022. Some suggest that they will never get back to where they were; perhaps that’s right. There’s no one defining moment that put us in this position. We were layered with events – global logistical and political – that lead us right here to this point, and it’s going to take some time to unwind. I do think as a nation of traders, we are resilient, we find our way through. What we’re having to do as an industry is move with changing demand, the consumer today wants to do different things in a different timeframe at a different cost. We have to respond to that and I think we are doing that in a confident way. We talked about the infrastructure going on around the country, then the motor industry and logistical centres. I think we’re doing an incredible job.
BF: I also would add that the amount of air freight that came in increased considerably. We’re focusing today on the ports, and years ago you wouldn’t have thought twice about which port you would ship to, but now you might think about which port and whether or not you’re going to grant exclusivity. We saw a massive increase in air freight during the height of the pandemic and when individuals couldn’t fly in planes, they literally took out the seats and used them for air freight. Our resilience and our ability should not be underestimated. JK: We have to cut our costs accordingly, we might have planned to build X but it has to be something slightly different, that’s been challenging. We have got a bid in to build the Institute of Technology in Crawley, which would be a multimillion pound centre for higher skills. What we could buy for £12 million two years ago might not be the same as what we can buy now, and that’s a real struggle for us. Any organisation or business that is looking at some construction will face real difficulties due to the problems that are currently being experienced with the supply chain.
JS: Every part of the supply chain is getting more expensive, even wages. There’s a story in the paper a couple of weeks ago about Waitrose paying their drivers more than a junior solicitor, for example.
AT: There has been issues surrounding many parts of our supply chain long before Covid came along. I think the pandemic just brought out those problems. It’s not just Covid or Brexit. I think it’s important to recognise that because those same issues are still going to be there when we come out the other side of the pandemic. Prices aren’t necessarily going to come back to where they were pre-Covid, they might probably stop halfway.
DF: On this topic, I think that we need to move to a much more long-term vision of what we want to do with our supply chain, not just in terms of one or two years, but in terms of the next decade.
DF: Absolutely. That solution has worked for us during the pandemic but we need to continue to evaluate its longevity in terms of sustainability and cost as we progress
BF: That’s really pertinent because you’ll now get ESG clauses and you’ll get financing linked to ESG and sustainability, it will actually trigger payments or rate changes. That is another way in which we’re seeking to achieve good outcomes but through finance incentives.
JC: One of our biggest issues is that we’ve got a quite large construction programme underway at Crawley College and materials are currently a real problem for us. You always put in a good contingency, but we are finding that our contingency plans are struggling with the delays that we are currently facing.
Your contingency has been blown and exceeded. Is that cost being borne by the college group?
Do you think that the shift will also need to be in a mentality around what we can expect from our supply chain?
DF: Yes. As a society, we need to think in longer terms. The current challenges in the motor industry is a good example where previously, a consumer would order a car in August and have it delivered by October. Is that realistic now? Or do we need to plan that if you place your order in March, the delivery date will be in January. Part of this, I think, is managing expectations around what our global supply chain can tolerate.
I think a really interesting point to consider is whether our demand for just in time services remains achievable. Just as an example, I’m in the process of ordering my new car. It will be an electric vehicle based on HSBC’s commitment to our sustainability goals and when we aspire to be carbon neutral by, but I will need to get used to spending more time refuelling than I do with my current car. It’s all about a mentality change and simply getting used to a new way of doing things. There are many EV drivers who have already gotten used to this, so it’s clear that the consumer can change their expectations.
JK: I think that’s similar to how we have had to buy locally during the last 18 months. There were some really inspiring stories where you couldn’t get your hands on an item and there’ll be a Facebook group that emerged with someone selling it. There has been a lot of businesses that have now set up on the back of spotting an opportunity. That’s one of the things that I hope isn’t lost going forward as they’ve also been creating jobs.
How do we think our climate goals are going to impact the supply chain?
BF: It already does. Contracts are full of policies about sustainability. There are ESG clauses in contracts and financing can now depend on the sustainability of the product. Consumers now vote with their feet. I can assure you my three teenage children buy with ESG strongly in mind, and they’re actually willing to pay more money for those products.
AT: I think there’s a really important point; unless there are really good ESG credentials, investment will be tight. The reason for that is because if a business doesn’t become ESG savvy in the coming years, they will be out of contracts within the next decade. We’re looking at a tender at the moment for government contracts, and you have to have a commitment to net zero by 2050. You have to have the plan in place. If you don’t have those, you’re out of the contract already. That’s not necessarily flowing down all the way yet, but it will in five years’ time. There is the consumer side of it, but there’s also the commercial business reality side of sustainability.
JK: That is a big issue for SMEs though, how can we make it so they aren’t disadvantaged when they don’t have a director of ESG, or they don’t have all those policies in place so that they can tick the box on the tender? There needs to be some level of support.
BF: Absolutely. Anybody who does not engage will be missing the boat. It’s a bit like 20 years ago, people went into shops, now people tend to buy online. That will be the same with sustainability and ethical sourcing, though hopefully sooner than in 20 years.
DF: It’s also about making all of this accessible to the consumer in terms of price points. If you look at electric vehicles, at the moment they’re more expensive to produce, the batteries are expensive. As a consequence, the choice of a modern electric vehicle may be restricted based on cost, but perhaps less so with petrol or diesel powered cars. I think that’s a really interesting way that we as an industry will need to look at how we price point our products.
Is sustainability and ethically-conscious business something we are able to force through the supply chain?
BF: The integrity of the supply chain and how you police that is something that we haven’t really talked about. Modern slavery is a good example of policing the integrity of the supply chain. And it’s where we’ve seen governments actually start to look down the supply chain, impose modern slavery statements, or require corporates to have a modern slavery statement. There are now some quite strong consultants in the area of checking your supply chain, I have to say it’s very thorough from what I have seen; it’s heartening, actually.
JK: One of my passions is around supporting womenowned businesses, but less than 1% of global corporate or government spending is on women owned businesses. In America, there’s been some really interesting work where quotas have been set to enable more women owned businesses to get on supplier lists. It is really difficult, particularly with large contracts, government contracts, it’s really difficult to break through and get on those lists to become a new supplier. The power that can be harnessed from getting different companies in the supply chain, and the innovation and enterprise that comes through always amazes me, especially when we broaden that inclusion outside of just women and increase our overall diversity.
Is that positive discrimination viable to implement within the supply chain?
JK: I think it is.
JS: I think I do as well, I think now that companies are really looking at their supply chain, because it’s failed at the moment, they’re trying to figure out whether it’s going to come back the way it was before? Or should we spread our risk around? So, there are companies at the moment that are looking to invest in East Africa, for example, for manufacturing. A lot of Chinese companies are moving in there with that experience of starting up low tech manufacturing. So, people are going to get employed in the supply chain from other backgrounds in different countries. Is it viable to try to introduce that positive discrimination when we are in a tight spot already, or is this something that we can only hope to do when things are running smoothly?
JK: A lot of it is looking at what are the barriers in the first place? Why are more women-owned businesses, or businesses owned by people from Asian minority ethnic groups, not bidding for these contracts, not looking to scale by seeking larger contracts? I know that Gatwick Airport have done a huge amount of work in looking at their supply chain, and some of it from a diversity perspective. We often hear the word ‘diversity’ and think of something very specific about race or gender, but actually it doesn’t need to be that: I think you have to look at diversity in a very, very broad sense. Larger companies probably can do more than most businesses, but every business has a responsibility. This is also not a case of pure morals or ethics, there’s a lot of research that has been done on it which suggest that diversity increases innovation, it increases profitability; particularly if the product or service they’re selling is aimed at that target group.
JS: When things aren’t going well everybody cuts cost, it’s the first thing they do. As a consultant, I’ve felt that several times. If you take that kind of attitude, then you’re never going to grow in the long term. It will take you years to get back to where you should be. You have to have a path and the direction. This includes everything we’re talking about concerning sustainability for the future.
As always the conversation has been gripping, but unfortunately we are now drawing to a close. My fi nal question to you all is: what is the future of the supply chain?
AT: The future of the supply chain is that it will become more predictable again. I don’t believe it will return to the normality of pre-Covid. I think that businesses will be able to predict with more certainty what their funding requirements are going to be and plan more accordingly.
DF: I agree in the way that the supply chain will return to a normality. The cost will go to a less volatile position. I think that the key is early negotiations between suppliers, customers, funders, and the banks, to ensure that we can predict what the actual funding cost will be and what the timelines will be. This is so that we can avoid unwanted surprises when they’re too late to do anything about.
JS: I feel that there will again be a level of normality, though with a lot of changes on top of that as well. I believe there will be more E-hubs in the UK, with businesses not exporting nearly as much, with separate hubs in Europe for that market. I also think that there will be an increase in automated manufacturing in the UK, whilst people- orientated manufacturing will remain in Asia along with a noticeable shift to Africa.
JK: My aspiration is that we will buy an ever-increasing amount locally, and from responsible and sustainable businesses. This must also be done in a way that creates skilled jobs for the next generation.
RM: I’m not sure it will return to normality in terms of price and cost, I think that everything will be more expensive. That said, I believe businesses will adapt and open up in a range of locations to cope.
BF: Businesses are starting to understand their supply chain in greater detail, and I think that this will continue onwards. This is including their contracts, they know what they are now signing and I believe this will have an impact on the way business is done going forward, particularly with the integrity and sustainability of their supply chain: they will be more holistic.
