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Tesco Move To Cut Payment Terms To 14 Days

Following the announcement by Tesco that it plans to cut its payment terms to 14 days, for suppliers that are small businesses, SMEs should not become complacent in the pursuit of overdue invoices, in the hope that other businesses will simply follow suit. Instead, it is urgent for SMEs to use Tesco's initiative as a signalthat a more robust approach to late payment may win them respect rather than lose custom as many SMEs fear.In Q3 2015, firms spent an average of 99 days waiting for an invoice to be paid, before instructing a solicitor to issue a Letter Before Action (LBA), threatening legal action.

There is a real fear that by chasing late payment, SMEs risk damaging the client relationship. This fear is unfounded. The trouble is that companies capitalise on this fear, so it’s encouraging to see Tesco make some steps towards addressing the issue.

Businesses must act early on late payments. LBAs take control of payment delays and 84% of companies settle overdue invoices, when faced with the threat of legal action. An LBA is not a barrier to trading - as long as there is good communication between supplier and customer and clear contract terms. The customer will be under no illusion that it will be more expensive if payment is delayed. In over 8 out of 10 cases, a simple warning of legal action is enough and can cost businesses less than a cup of coffee.

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