Automation in action – solving the £23bn late payment crisis

Author: Tom Gummer
Contacts: Mike Gilpin, Alison Loveday, Carlyn Weale

SMEs – companies with a balance sheet of less than £5.1m, or 50 members of staff – make up a whopping 99.9% of the total 5.9 million businesses in the UK. But they have a problem. Nearly half of their invoices and bills are being paid late. Money that is owed to them for services and goods is flowing in at half the speed it should. To give you a flavour of the issue, the average UK SME is chasing 5 outstanding invoices at once, spending at least an hour and a half every day trying to get paid for the work, goods or services they’ve provided. That adds up to 900,000 hours a day across the sector.

But the solution is simple right? Hand all those invoices to lawyers, and they’ll sort it. Well, with guideline hourly rates for UK lawyers up to £400 per hour and the average late invoice around £8,500, it just isn’t cost effective to instruct lawyers on smaller scale debts. The debt owed is eaten away by legal fees. And that is why SMEs in the UK are suffering, with losses running to £40bn a year, and over 1 million business owners with anxiety and ill health. Add a global pandemic to that situation and things have spiralled out of control.

So, is there a fix to this, a technological fix, perhaps? Well, according to a recent in depth study of the issue by LawTech UK (a government-backed initiative), the answer is yes. Together with professors from Oxford University, a consultancy and legal tech company, Jur – LawTech UK explored the feasibility of an “online dispute resolution to tackle the SME late payment crisis”.

The study, which took place over the space of a year, concluded the following:

• That the issue of late payments was hurting the UK economy & SME growth

• That a technological platform which:
  • enabled optimal cooperation between parties in dispute;
  • facilitated effective settlement;
  • included data capture at all stages of the dispute; and
  • automated document production and case facilitation; would help UK SMEs to solve disputes 4 times quicker than the traditional route; and  could empower UK businesses to resolve +200,000 disputes over a five year onramp period, accounting for £3.4bn in debt value.
• That the platform should run on a self-service ethos, where businesses could initiate and settle debt claims/disputes themselves with reduced lawyer input, all for a fixed fee.

   

• That the system would need a £3.5M investment to build but would unlock £3.4B owed to businesses that otherwise would be locked up due to a lack of effective and accessible dispute resolution.

However, amongst the concluding paragraphs, the study revealed that there were no current UK Government plans to invest in or build such a platform, teeing up the open market to seek funding, based on the proposal.

Kennedys IQ has long recognised the value self-service fixed fee claims platforms can provide. For the past 10 years we’ve been helping businesses and insurers to use lawyers only when they really need to, via technology. In the process we’ve allowed access to legal expertise and the settlement of disputes at greater efficiency and lower cost.

Our Recovery Manager tool is one such example. It allows a business, insurer or individual who is owed a debt to initiate a claim for recovery. The platform allows you to proactively manage debt recoveries (at volume) in one central location. Guiding you through the claim process it:

• Auto-generates compliant pre-action letters before claim, crafted by lawyers, to pursue debtors correctly and with vigour;

• Reminds users when to follow up on and action correspondence received or sent, within the correct time frame, to ensure claims for recovery of debts don’t drift;

• Aids users in sending settlement offers and responding to them, allowing settlement attempts to begin at the earliest opportunity;

• Generates binding settlement agreements and manages the receipt of payment if settlement is reached; and

• Will generate litigation documents and guide users through filing, where no resolution and the case merits progression to litigation.

Our aim is to enable the swift, cost efficient recovery of mid to lower level debts in order that businesses, individuals and insurers can avoid debt write-off and cash flow issues; and the pains that the LawTech UK study so rightly highlighted as needing solving.

And, progress is being made – with one business user recovering £1.95M of debt owed via the system in just 8 months. But we’re not just looking at this as a British problem to solve, Recovery Manager is also being configured to operate in the US, Middle East and beyond.

In conclusion, we wholeheartedly agree with the recommendations of the LawTech study. It is time that technology and automation helped those in need to access more efficient and more affordable legal services.

^[1] Section 382, Companies Act 2006
^[2] Department for Business, Energy and Industrial Strategy (BEIS), National Statistics Business population estimates for the UK and regions: 2019 statistical release, updated 14 January 2020.
^[3] 46% https://www.business-money.com/announcements/uk-sme-late-payment-epidemic-revealed-46-of-invoices-are-paid-late/
^[4] https://www.cityam.com/uk-smes-chasing-50bn-in-late-payments/
^[5] https://www.gov.uk/guidance/solicitors-guideline-hourly-rates