Can’t pay – won’t pay – should pay?
Unpaid business invoices have risen to a shocking 23% from the beginning of this year according to a recent statistical analysis of 26 million invoices of 3.7 million businesses.
The actual number is possibly higher as the data only considered payments later than 10 days overdue.
The Federation of Small Businesses (FSB) estimates that some 50,000 SMEs fail annually because of delayed payments and research from BACS, the bank payment system, found that the problem was getting worse.
In the previous 12 months alone, debt from late payments in the UK had risen to an incredible £23.4 billion, which was an increase of £10 billion on 2018.
The cost of recouping this owed money through legal means is estimated to be £4.4 billion a year which averages to £25,000 per company – just for chasing their legally owed debts.
So every business in the UK theoretically starts the year £25,000 in the red for no reason at all.
Other groups that are usually insulated from non-payment are starting to feel conditions tightening as the pandemic lockdown continues.
Several retail landlords are demanding more support and protection from the government for the non-payment of rent and are also furious about new legislation passed last month that barred them from issuing statutory demands and winding-up orders on tenants until June 30 2020 at the earliest.
This followed the introduction of a three-month moratorium on evictions for non-payment of rent.
They claim that while well intentioned, the rules now effectively enable otherwise monied tenants, some of whom have reopened and are trading physically or online, to claim that they “can pay but won’t pay.”
The overall feeling among an influential group of Landlords, who met recently to discuss the issues was that while they were all for supporting small businesses with rent holidays if they genuinely couldn’t pay, they shouldn’t have to help larger companies that decide to withhold rent.
One said: “Seriously, should I suddenly have to give Coral a rent holiday?”
The British Property Federation estimates that retailers had paid only a third of their estimated collective £2.5 billion rent bill at the end of March and expect rental payments to “hit rock bottom” in June.
Office tenants paid about two thirds of their £2.1 billion rent bill and this sum was expected to halve in June too.
The issue of non-payment of rent and bills is forcing landlords and tenants to exploit every section of the law to try and find a loophole to provide redress.
One recent High Court case outlines the lengths some will go to.
In Shorts Gardens LLB v London Borough of Camden Council (2020) the judge dismissed an action from Shots to suspend winding-up orders brought against it by Camden Council and Preston City Council for non-payment of business rates.
Shots made the argument that it was not liable for rates for various reasons and wanted the judge to not deliver a verdict and stay their order to, in the plaintiffs own words, “use the opportunity to help steer Parliament to what would be fair in the mind of public opinion.”
Unsurprisingly, the judge disagreed and allowed the winding-up orders to proceed.
Nobody likes paying rent but when you sign a lease it’s commonly understood that you will.
The opportunity to bolster balance sheets and accounts is tempting, even if you can afford to pay rent, especially if you read about your competitors doing the same.
Some of them will come to an end before others and the legal system will be one of the first to shift back into top gear when any lockdown is lifted.
Unless you want to be one of the many businesses spending their newly acquired rental savings on defending legal actions from their creditors the moment they’re allowed to be brought, it might be advisable to consider other ways to make savings.
We can help you review your business root and branch to find economies and other ways to cut your costs, maximise your assets and find the key savings that will be the difference between emerging from the lockdown head and shoulders ahead of your competition or nervously looking over the other shoulder for an angry landlord…