Nicola Ross

Recently Etsy and Amazon have been outed for withholding funds from sellers, while Booking.com has made international headlines for being significantly overdue on payments to property owners who have listings on the website.

However, while these huge brand names may generate headlines, the reality is that many businesses of all sizes struggle to secure payments on time. In fact, the most recent data analysis shows that Scottish businesses have reported over 400,000 overdue invoices as of July 2023.

Overdue payments – especially from a key customer, or high volumes from multiple customers – can leave businesses in paralysis. They can also trigger a domino effect by delaying payments to the company’s own suppliers, where they could be unable to pay staff and some could even need to consider whether the company’s solvency is at risk.

No business is immune to the late payments issue, so what can business leaders do?

The first step is prevention. Before entering a commercial relationship, check for negative online reviews, run a credit check to indicate financial risk, and ensure their own terms and conditions are clear, unambiguous and up to date – and make sure to send them to your customer before you supply anything to them.

When past the point of prevention, businesses should double down on credit control to ensure their system is proactive and consistent. They should issue a credit control letter or email if payment has not been made on time, and keep a record of follow-up phone calls to help should the customer continue to fail to make payment. The more consistent a business is in its credit control, the more likely it is that customers will prioritise their payments.

If these initial measures do not work, businesses can consider escalating the situation through a formal dispute resolution process. Litigation can provide a route to recovery where other routes have failed. If there is a genuine dispute about the goods or service supplied then mediation may be an option as it helps to resolve issues outside of court. This helps to preserve commercial relationships by encouraging communication and developing a solution that works for both businesses. If court action is defended, then it can undoubtedly become expensive and cause additional cashflow issues for businesses. Some firms such as Morton Fraser offer “success fee arrangements”, whereby businesses can litigate at no upfront cost to them in exchange of a greater portion of the amount that is recovered through a successful court decision.

Experiencing a significant late payment or an accumulation of many is highly stressful to businesses. On the flip side, a business which is genuinely struggling to make payment will also be subject to stress. For companies that are unable to make payments or will need to pay late, a proactive approach is the best possible route to preserving commercial relationships and mitigating impacts on their trading partners. Those struggling to pay might consider communicating this early in order to agree terms or a payment plan that preserves the relationship and reduces the impact on both businesses.

Late payments create a vicious cycle within the business community. By taking preventative measures and communicating early, businesses can reduce the impacts and break the cycle.

Nicola Ross is a partner in the litigation and dispute resolution at Morton Fraser. This article first appeared in The Herald.