Trade owed average of £6,984 on late payments!

The cost-of-living crisis has caused all sorts of issues for the self-employed and small businesses, least of all non or late payments!

Tradespeople owed an average of £6,984 - A-Plan Insurance

This month we talk about the issue surrounding non-payment by customers and how this can be avoided. The Painting and Decorating Show’s Chief Executive Neil Ogilvie believes the ‘back of a cigarette packet’ quote and contract process is alive and well. Sound familiar? Read on!

The rise in outstanding payments

Shockingly, according to a recent survey by Direct Line, tradespeople are owed an average of £6,984 in outstanding payments.

Direct Line reports that, on average, the largest single invoice they have given up chasing payment on comes to £4,757, with nearly a quarter (24%) losing out on payments worth over £2,500. More than three quarters (78%) have at some point tried to make a legal claim to recover payments. Over half (57%) were either unsuccessful in their claim or still have unresolved claims.

Research from The Institute of Chartered Accountants in England and Wales (ICAEW) revealed that overdue payments cost small business owners £684 million each year with over half (51%) of tradespeople stating the ongoing cost-of-living crisis has impacted the number of late payments they are chasing.

Clearly, these statistics are completely unacceptable, and so we would like to raise these issues with the trade, to be on the lookout, and to homeowners who may not realise the impact of their actions.

The consensus is that the cost-of-living crisis has pushed customers into a financial corner. The onus is now on tradespeople to use their experience and really ensure that the customer is in a good financial position, to afford the work they’re requesting, before they make a start.

Liz Barclay, the Small Business Commissioner advises the trade to get everything in writing: “Right from the job specs to materials that need to be bought and get them paid for upfront. Don’t risk shelling out for sinks and basins without getting paid for them!”

If you aren’t getting paid in stages already, start doing this now. Early-stage payments will sound out those who can really afford to do the work, enabling you to crack on without footing the bill – and taking all the financial risk – yourself.  Whether you provide a quote or an estimate, outline this on the document and explain how you will require paying in two, three or four stages. Running through your ‘terms’ to begin with can save you a lot of grief further down the line. The homeowner will clearly understand how much money will be needed to pay for materials and the service they get, and when they are expected to pay it. In 2023, it’s never been more critical to set this system up from the get-go, with you both signing the document in agreement prior to commencing works.

Upfront deposits and staged payments are recommended to reduce exposure, with a minimum of 30% upfront, another 40% halfway through and the final 30% at the very end.

In fact, the same report states that over a quarter of tradespeople now refuse to start work until they receive up-front payment in full. And it’s worth getting digital if you haven’t already – a quarter of the trade are armed and ready to take that upfront payment via a card reader or mobile payment.

Quote or estimate?

While rough quotes may give the trade more flexibility in terms of incorporating prices increases into the final price, it can leave many vulnerable to disputes and non-payment. Ultimately, a contract is all about agreeing a price and ensuring you get paid that price, and if that doesn’t happen, the ability to pursue the costs in a court. The key is to prevent problems arising before you even get started.

Estimates are more flexible while a quotation is a more formal, a fixed price agreement. Whether you’re the builder or the customer, you’ll know that (or will find out that) unforeseen problems generally can crop up. Opting for an estimate can accommodate that, while a quote is an agreed price for the entire job, falling plaster, rotten timbers or otherwise. However, there are ways in which to do this which make all the difference.

  • Always talk to your client about price increases to begin with.
  • Decide whether a quote or estimate would serve you best.
  • Double check your costs – you may know the cost of your timber like the back of your hand but there are huge fluctuations across the market, and across a range of products at present.
  • If you are worried about the price of materials increasing between now and when you start the job, limit your quote or estimate to 30 days.
  • Outline your terms: will you be staging payments and when do you want to be paid?
  • Spend half an hour doing it professionally, ideally on headed paper, ensuring it is dated.
  • Talk through the quote or estimate with your client and both sign and date it if in agreement.

Whatever you do, don’t leave yourself short to begin with. By providing an accurate, double-checked and professional quote, not only will you save yourself the embarrassment of saying you’ve underestimated the cost of materials, but save yourself a lot of hassle when it comes to payment.

Taking cowboy customers to court

Although it can be tempting to threaten legal action against ‘cowboy customers’, the reality is that it can cost so much more in time, energy and money. From court fees to missed work, least of all the impact on mental health and family life, there’s a lot at stake. It’s certainly better to tackle all of the awkward questions at the start, and chase the final percentage of the outstanding payment at the end as opposed to one big lump sum.

If you decide you do want to pursue the matter in court, by following the steps to create a professional signed and dated quote or estimate, you’ll have far more success using that as evidence than a ‘gentleman’s agreement.

While we can’t chase your overdue payments, we do have a range of business cover options, including policies that cover legal expenses to help you pursue them. Not sure whether you are correctly covered for your business? Talk to your local business branch today, they will be happy to answer any questions you have.

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