Ten Top Tips To Beat The Late Payment Trap

A worrying and increasingly well publicised by-product of the current economic downturn is a worsening climate of late payments and bad debts. Smaller and medium sized businesses continue to be hit disproportionately hard by late and non-payment of invoices and the damage to their cash flow can have extremely serious, if not fatal consequences.

Prevention is always better than cure though, and there are a number of simple procedures that they can implement and follow in order to minimise the risk of falling into the late payment trap. Here are ten useful tips:

1. Credit check potential and existing customers -
   there are a number of credit referencing agencies out there who will offer you this service. Companies House can offer information on incorporated businesses and private agencies can be used for unincorporated ones. It will require some effort, but it is essential that you check the ability of a new customer to pay you. Consider bi-annual checks on existing customers.
2. Agree payment terms and conditions -
   this may well be included in the terms and conditions governing the business relationship but make sure that from the outset that both parties are crystal clear as to their payment obligations. Confirm this in writing prior to your first supply of goods or services and make sure that they are clearly stated on all subsequent invoices. Up to date and relevant standard terms and conditions are essential to the proper function of most businesses. Make sure that yours are current and watertight and that they form the basis of your contract and not your customers' set.
3. Timely invoices -
   raise and issue invoices immediately upon completion of your supply. Ensure that all relevant address details are included, that they comply with all of your customer's requirements and that they restate when payment is expected by.
4. Keep clear and organised records -
   keep clear and accurate records of all communications with your customers, including emails. Make notes of telephone calls (bearing in mind that they might have to be used in court one day) and keep clear records of payments so that you can monitor the status of the account easily.
5. Establish good lines of communication -
   identify who is who in your customers' accounts department and establish a good rapport with them. This will ease the way when trying to solve payment problems. Follow up invoices with phone calls to ensure receipt and call or visit your customer to remind them of any outstanding and late amounts.
6. Encourages fast payment -
   consider offering discounts to customers who pay promptly.
7. Understand your legal rights -
   for example, under The Late Payments of Commercial Debts (Interest) Act 1998, small businesses can charge interest to customers who have overdue accounts (Bank of England base rate plus 8%). Even if you don't state a payment period in the initial agreement with your customer, the Act deems a payment to be late after 30 days. It is worth citing the Act on your invoices though.
8. Be clear as to your own procedures -
   take time to set up or review your own credit control procedures. Have a clear and well documented set of rules for chasing late payments including standard letters to be sent out at set intervals. It may well be worth your while to have these drafted professionally to ensure that they have the right gravitas and that they invoke the relevant law whilst maintaining an appropriate tone. Train your staff in their use and centralise the authority to issue them. Once you have agreed your system, use it!
9. Situational awareness -
   keep an eye on your customers. This is not an invitation to spy on them, but do monitor their behaviour. Are they acting differently? Are they suddenly difficult to get hold of? Are they sending post-dated cheques? Remember, prevention is better than cure.
10. Talk softly, and carry a big stick! -
    No one wants to get to the point that the only option is formal legal action to recover a debt, but don't be afraid to go the whole nine yards if it comes to that. If all reasonable attempts to sort the problem out have failed, there are various options open to you if you have to go that far, all of which are 'user-friendly' and specifically intended for speed and ease of use.

For a free consultation on the above or any contentious or insolvency matter, please contact Andrew Wilson, our litigation and insolvency solicitor on:
Tel: 08456 678 978
Email: andrew.wilson@acumenbusinesslaw.co.uk

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