One of the basic truths of insurance is that financial problems can cause attempted fraud, or non-disclosure of true circumstances. It’s generally a minority of people who react this way under pressure, but data like this from Direct Line is worth noting if you are in Claims;
We have a late payment problem, 81 per cent of tradespeople are owed money and are currently chasing £6,210 on average, according to new research by Direct Line business insurance. Half of tradespeople say they have seen a rise in the number of customers disputing invoices, and a further 42 per cent say they are chasing more late payments now than they were last year, as the problem is getting worse.
Almost three quarters of tradespeople (73 per cent) are chasing multiple overdue payments, fighting to secure an average of seven late payments. A third of those owed money (32 per cent), are currently chasing outstanding invoices worth £2,500 or more, with nearly one in ten (nine per cent), owed more than £25,000. One in seven (15 per cent), are currently chasing ten or more payments.
Late payments don’t just impact on tradespeople financially. Nearly a third (32 per cent) of tradespeople feeling anxious as a result, and over a fifth (22 per cent) feeling annoyed or stressed.
Table 1: How late payments make tradespeople feel
|
Emotion
|
Percentage
|
|
Anxious
|
32%
|
|
Annoyed
|
22%
|
|
Stressed
|
22%
|
|
Fine
|
19%
|
|
Overwhelmed
|
17%
|
|
Desperate
|
19%
|
|
I don’t let them bother me
|
8%
|
Source: Direct Line business insurance
Over a fifth (22 percent) of tradespeople worry that pursuing late payments takes time away from work. One in five (20 per cent) say that late payments leave them unable to cover their family and personal expenses, while 18 per cent say it causes difficulties running their business. A further 13 per cent of tradespeople worry about the cost of getting legal advice if their clients don’t pay on time.
Table 2: Top concerns relating to late payments
|
Concerns about late payments
|
Percentage of tradespeople who agree
|
|
The time spent chasing payments takes me away from being able to do my core job
|
22%
|
|
Not being able to cover my family / personal expenses
|
20%
|
|
Causing difficulty running the business e.g., paying suppliers
|
18%
|
|
It has a negative impact on my mental health
|
15%
|
|
Potentially needing to let employees go
|
14%
|
|
The cost of getting legal advice if my clients don’t pay me on time
|
13%
|
|
Not being able to cover business expenses
|
17%
|
|
Potentially going into an overdraft to cover expenses and this affecting my credit score
|
15%
|
|
Not being able to pay employees / myself on time each month
|
13%
|
|
I am worried that I will need to file for bankruptcy
|
13%
|
|
N/A – Nothing worries me about late payments
|
18%
|
Source: Direct Line business insurance
Over four fifths (84 per cent) of tradespeople surveyed said that they had applied to make a claim for outstanding payments through a small claims court, with just under half (48 per cent) being successful. This is an increase on the third (34 per cent) who confirmed they were successful when asked in 20232.
On average, the largest single invoice tradespeople have given up chasing comes to just nearly £4,500 (£4,390), with almost a quarter (22 per cent) losing out on payments worth over £2,500. Nearly one in ten (eight per cent) have had to give up a payment of over £10,000, with just over one in 20 writing off an invoice of £25,000 or more, significantly impacting finances and the ability to run their business.
In an attempt to counter this, over a third (36 per cent) take half of the payment up front and the remainder once work is complete, over a fifth (21 per cent) send invoices well in advance and chase for the payment nearer the due date, while just under a fifth (19 per cent) charge a ‘late payment fee’ to discourage clients from paying late, as well as 19 per cent offering discounts for paying quickly.
Alison Traboulsi, Product Manager at Direct Line business insurance commented: “Late payments can quickly become a big problem for small and independent businesses, leaving them unable to cover personal and business expenses, resulting in cash flow problems, stress and legal headaches. Pursuing late payments is time consuming and eats into the time that could be spent working or with family and friends.
“Research from the Office of the Small Business Commissioner shows that late payments cost small business owners £2.5 billion3 each year, and we know it is a major issue for tradespeople. It’s concerning to see the value of invoices tradespeople have had to write off and that many tradespeople are seeing a rise in the number of customers disputing invoices and the number of payments they need to chase.”
Direct Line business insurance policies come with Legal Essentials, a service that provides tradespeople with unlimited access to a team of DAS legal experts for confidential legal advice and access to a library of legal templates, tools, and guides to help them run their business, including guidance on how to pursue late payments.
A 24/7 helpline is available to provide advice on the laws of England and Wales. For uncommon and certain country-specific areas of law you will be referred to specialist advisors, who are available 9am-5pm, Monday-Friday, excluding bank holidays. The service also provides policyholders with access to a Stress Counselling Helpline, which is available 24 hours a day, seven days a week, all year round.
For more information on Legal Essentials please visit: https://www.directlineforbusiness.co.uk/small-business-insurance/legal-essentials
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