According to City AM at any one time small and medium sized firms are owed around £50bn in overdue payments with the average sole trader spending 90 minutes of every day chasing payments. And according to their research the average invoice for an SME is £8,500 meaning cash flow is constrained and in some cases one bad debt can put them out of business.

Warning signs

The warning signs are many and varied when it comes to not being paid or being paid late but the most obvious one is the payment date is missed. Most firms trade on the basis that the invoice will be paid no later than 30 days from the date of invoice. Since most payments are made by BACs or direct bank transfer there is no reason the money should not arrive in your account later than 24 hours after the 30th day.

Ian Carrotte of ICSM Credit said: “Before you trade with a new client there are some basic housekeeping rules you should abide by which will save you future problems. If you have to take legal action one day then having all your ducks in a row is vital.”

Ian Carrotte

He said clients need to agree to the terms and conditions of a supplier and accept their payment terms in writing before they trade. A supplier is in a much stronger position if they have a purchase order and purchase number along with the name of the person who ordered the work. Finally invoicing promptly and then having a fixed credit management policy involving a polite chasing up phone call, a statement and overdue payment invoice will be the evidence a debt collector and court will need to have.

Popular and unlikely excuses for non payment include ‘our customer hasn’t paid us yet’; ‘the cheques’ in the post’; the director hasn’t had time to sign it off; ‘we’ve not had the invoice’; ‘the person who ordered the work had no authority’; ‘accounts are all on holiday’; and the old ‘there was a problem with the invoice.’

If the client is clearly not going to pay the invoice said Ian Carrotte then you must act fast. He said: “You have a right under the Government’s Prompt Payment Code to add interest to an overdue amount as you are in effect giving your client free credit while at the same time inflation will take its toll.”

How to add interest

To add interest use this basic example:

If your business were owed £1,000 and the Bank of England base rate were 0.5%:

the annual statutory interest on this would be £85 (1,000 x 0.085 = £85)

divide £85 by 365 to get the daily interest: 23p a day (85 / 365 = 0.23)

after 50 days this would be £11.50 (50 x 0.23 = 11.50)

Send a new invoice if you decide to add interest to the money you’re owe.

The Prompt Payment Code Background

Ian Carrotte said many firms sign up to the The Prompt Payment Code (PPC) the voluntary code of practice for businesses set up in 2008 that sets standards for payment practices between organisations of any size and their suppliers.

“It’s a very good code but like many in business I feel it should be mandatory and late payment should largely be outlawed,” he said, “it sets out payment terms, guidance and dispute resolution. And it has the provision of kicking out firms who sign up but then fail to abide by the rules.”

Debt collection

Paul Carrott is the Head of Collections at ICSM and said they have a strict set of procedures to follow once a member of ICSM or an outside business contacts him. ICSM Credit will send out a legal letter to the debtor which usually brings in the cash as it is from a third party and the words ‘debt collector’ are often enough to settle the account.

The next step is a phone call or a visit to the debtor to ensure they are aware they will be taken to court and that the evidence is overwhelming. Again this usually forces payment. However in genuine cases a payment plan may be agreed if the debtor is unable to pay.

If that fails, then ICSM will take the claim to court to obtain judgement. After a County Court Judgement is granted the customer has the option to enforce their judgment which can be to instruct a bailiff to take action which is the last resort but is always effective with the debtor usually finalising payment at that stage.

Ian Carrotte said: “A business or a sole trader who has carried out the work or provided goods ordered by a debtor should and must be paid. Too many firms will prey on suppliers often ordering work which they cannot afford. It is only right that suppliers are paid like everyone else but sometimes the force of the law has to be applied to ensure they are – which is where we come in.”

About ICSM Credit

ICSM Credit has more than four decades of experience as a credit intelligence group whose members gain inside information about firms in trouble allowing them to avoid bad debts and rogue traders. To join costs less than a tank of fuel – while at the moment there’s a special free temporary membership offer during the Covid-19 crisis which gives access to free legal letters. ICSM also has an effective debt collecting service which has a global reach – ask for details from Paul.

For details about ICSM Credit call 0844 854 1850 or visit the website or email Ian at on how to subscribe and to join the UK’s credit intelligence network to avoid bad debts and late payers. Follow ICSM Credit on FaceBook, Twitter and YouTube and Ian Carrotte on LinkedIn.

To keep up to date subscribe to the FREE ICSM Credit Newsletter to hear all the latest insolvency news and to see who has gone out of business click on the orange panel on the top left of the home page of the website or send an email to

For details for the work of the journalist Harry Mottram visit