Businesses need to update their Terms and Conditions

Latest research from the Credit Management Research Centre (CMRC) at Leeds University Business School, and member of the Better Payment Practice Group (BPPG), reveals that businesses are not using the late payment legislation to their best advantage by omitting their rights under the legislation from their terms and conditions.

CMRC carried out research into the credit management practices of over 1,000 UK firms both small (under 50 employees) and large (over 250 employees).

Three quarters of businesses surveyed said their trading conditions allowed them to charge interest on overdue accounts. However this reduced substantially to 55 per cent of the small firms in the sample.
Despite the majority of businesses being allowed to charge interest, only 38 per cent of firms said they made their customers aware of their rights under the late payment legislation in their terms and conditions. Large firms are more likely to take this approach, with 55 per cent of large firms in the sample stating they made their customers aware of their rights in comparison with only 15 per cent of small firms.

Of the firms that advise their customers of their rights under the late payment legislation, 43 per cent said they state it in their terms and conditions, 20 per cent stipulate it in the credit agreement and on other literature and 24 per cent reach an agreement with the customer when the debt gets to a specific number of days late.

Commenting on the findings, Professor Nicholas Wilson, Director of the CMRC and member of the BPPG said: “For businesses to benefit from the late payment legislation it is vital to include the right to interest and debt recovery costs as part of the terms and conditions right from the start. This sends out a clear message of the consequences of paying late and acts as a deterrent to the customer. We would encourage businesses to update their terms and conditions to include their rights under the late payment legislation.”

Further advice about good credit management practices is available on this website, and further research can be found at www.cmrc.co.uk

You can keep up to date with the Better Payment Practice Campaign by sending us an email