October 2000 - Small Business News

TOPIC 2

PENSION PRESSURE ON SMALL BUSINESS

All businesses with five or more employees are required to arrange a Stakeholder Pension for their staff to take effect from 8 October 2001, with a fine of UKP50,000 for those who fail to comply. The scheme will affect all those earning between UKP9,000 - 20,000 (those earning less can still take part) and who work for companies that do not provide a corporate pension.

If you employ a fifth employee after the start date you will have three-months in which to set up a Stakeholder scheme.

The onus is firmly on the employer to set up the scheme. "According to the Federation of Small Businesses, employers not only face the burden of administering contributions, they could even be sued if the pension scheme they choose does not come up to their employees’ expectations. At the very least, says the FSB, an underperforming pension scheme could lead to ill will in the office." I bet!

An application pack for the tax approval and registration of a stakeholder pension scheme will be available for use from mid September from the Pension Schemes Office (PSO) of the Inland Revenue, or by printing your own forms from:

The 'Occupational Pensions Regulatory Authority' (Opra) has a list of registeredpension schemes at their web site.

And of course, what's it all about:t:

The government wants people who can save for retirement to do so. Stakeholder pensions are designed for people without access to employer sponsored pension arrangements. They are secure, flexible and offer value for money. They will provide the opportunity for many more people to save for retirement in a way they can afford. Providers of the  pensions will not be allowed to charge more than 1% of the annual payments: and that IS good news.

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TOPIC 3

QUESTION AND ANSWER  

Another of our popular Question & Answer replies. We always give an answer, with the most beneficial replies being added to the web site for others to see and use no personal details are ever revealed.  

THE FRIGHTENING COST OF LATE PAYMENT

QUESTION: 
I have a small business and I have been charging 20% interest on ALL late payment of invoices after the initial  30 days credit I allow. My question is, can I still charge 20% and can I take legal action against a customer where they pay the original invoice amount but not the interest?

ANSWER

As you have probably heard the part of the Late Payment Act that allows small business (in late payment terms a small business has less than 50 employees) to charge other small businesses late payment interest comes into force from the 1 November 2000. From this date, whether or NOT you have a late payment clause or terms and conditions of sale the Act allows you an AUTOMATIC right to interest at the statutory rate of (currently) 8%, plus the bank base rate (currently) 6%: a total of 14%.

Note: Customers that have to pay immediately CANNOT take 30 days credit. The supplier must offer credit terms in the first instance or no credit terms exist. Where no credit is offered and the customer defaults on payment you would, as at present, sue the customer for the balance, interest, costs and damages through the courts.

You are quite right about questioning the 14% (albeit that this is a major step forward in small business survivability) as providing credit can cost the supplier more than 14%. When a customer fails to pay you, you costs can be:

a) Having to use your overdraft instead of this cash

b) Less cash to reinvest in stock etc

c) Administration/credit control: 

letters, phones, wages and overheads heat, light etc

d) Involve external debt resources

I'm sure most of you could add much to the above, with that '14%' starting to look a bit on the small side! The Act states that a "substantial remedy" is required to offset late payment: I would say that your claim for 20% is fair IF you have the costs to match your claim and that the amount of interest was agreed with the customer PRIOR to the sale, and as a MINIMUM prior to the invoice being raised. 

If a 'large' business tried to get you to supply them on credit with a late payment clause of say, 2%, that would not constitute a "substantial remedy" and a court would give judgment at a minimum of 14%.

When we look at the above costs for the supplier in providing credit, the effect of not charging interest is clearly seen. With 20% costs you obviously need a minimum of 20% profit to end up EVEN! I doubt you need much more information to understand why late payment cripples ALL businesses.

As to taking legal action against a customer who pays the invoice in full but not the interest: yes you can sue for the balance. The Act allows for the supplier to sell off these debts to a third party (you must notify the customer) and the debt agency can collect 'en masse' thereby aggregating the costs: you may not sue for UKP80, but specialist agencies will. And of course, you can sue yourself.

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TOPIC 4

BITS & PIECES

1. EGGHEAD IN A JAM

In our last newsletter we reported that JamJar.com, the e-car retailer, wrongly entered on-line a discount of UKP1,000 on a Nissan Primera but did not have to honour the price as no payments were taken. In the USA Egghead.com advertised a on their web site a computer memory gadget with a normal price of USD335 for USD34.85 . When Egghead noticed the error, they cancelled the thousands of paid orders it had already received and gave those who complained a USD50 gift certificate. A clause on their site stated that they have the right to cancel orders if pricing errors occur: I doubt the courts would agree with that statement.

2. SEARCH HOUSE PRICE TO EXACT POST CODE

Knowing a house value has always been an issue in credit reporting scenarios, and finance requests, with a multitude of uses for the consumer: but the figures are usually too general to rely upon.

The Land Registry site allows you to search down to the forth digit of your post code for average prices on house sales in that code area: i.e. with a post code of 'SW2 7YT' the result will include 'SW2 7' being pretty much an exact science :))

The results include detached, semi and terraced and presently return results from 1995 to June 2000. 

Landreg

Remember to check the 'Tick to search...' option as well as entering your required post code.

3. BANKS RISK ACCOUNTS FOR THE RISKY

A number of high street banks have, or are to, allow bank accounts to be opened by those who have less than favourable credit histories. The account holders will be given cash cards, phone banking and in some cases direct debit facilities. The banks are withholding a cheque book and overdraft facilities until the account holder can upgrade to a full current account. The banks involved are Nat West, Lloyds TSB, with HSBC to follow soon. 

4. NON STATUS MORTGAGE FOR SELF EMPLOYED

Mortgage Intelligence are advertising a mortgage for the self-employed with no accounts or bank statements being required, a 10% deposit and can also be for either a purchase or remortgage.
 

I'll see you there!