Despite positive news on the UK economy, the continuing culture of late payment remains a concern for many small businesses, with national business organisation the Forum of Private Business recently reporting that 23 per cent of its members questioned in a recent finance survey had seen an increase in late payment over the past year.
This is a major cash flow challenge for small businesses and Jo Eccles, business adviser at the Forum, highlights the key steps a business should take to ensure they get the money they are owed.
1. Always use terms and conditions
You should always have clear payment terms and conditions and get these signed by your customers. This makes things clear from the start and also makes it far easier for you to chase debts if it reaches the stage of court action. Terms should be discussed at the earliest opportunity, especially when negotiating a large contract.
At the very least, your terms should include the following:
- the length the credit will last
- a clause asking for a signature to show acceptance of the terms; and
- a clause outlining your right to charge interest for late payment.
Also be aware of any wording in documents from your customer that changes the agreed payment terms. If you accept their order, you might also be accepting their changed payment terms and if you fail to challenge them, their terms will take precedence.
2. Get all payment terms in writing
To prevent misunderstandings further down the line, it is advisable to ask the customer to sign a written contract or order confirmation before goods are dispatched.
3. Invoice quickly and efficiently
The sooner you invoice, the sooner you get paid. Your invoices should include a thorough breakdown of all costs, dates and details of the product. It is worth noting that any mistakes at this stage can be costly as they could provide the customer with reasonable grounds to delay payment. If you have to reissue an invoice this will change the payment due date.
4. Send a statement as soon as possible after the end of the stated payment date
The statement simply states the amount owing and the due date. Hopefully, this will be enough to encourage payment, but if not send a reminder letter.
5. Send the first reminder letter
This should be sent fairly close to the statement, perhaps a week later, to show that you are keeping an eye on the debt. At this stage, the letter should be polite, gently reminding the customer that they have not yet paid. A terse letter might seem more likely to illicit payment, but it could also have the negative impact of disenchanting a valuable customer.
6. Follow up with a telephone call
If the reminder letter has failed to work, the personal approach is the next step. Try to speak to the person the invoices have been sent to. Talk through the specific details of the product and the dates when payment should have been made, as well as subsequent actions taken.
Now is the time to find out if they have any queries over payment, or if they are struggling to pay the bill and wish to pay in instalments. By the end of the call, you should have agreed a plan of action with regard to paying the debt.
Follow the call up with a letter, outlining the details of the conversation.
7. Send the final reminder letter
This should outline the action you will take if payment is not made promptly – for instance, refusing future requests for credit or taking statutory action to recover the debt.
Take legal action
A last resort and no one relishes the thought of having to take legal action against debtors, but the money you are owed is rightfully yours by law.
Sometimes patience just is not the answer, especially when your business is put at risk because of the debt. We recommend that you seek professional legal advice regarding any statutory action to recover your debts.
Many organisations such as the Forum offer debt recovery services run by an experienced debt collection team and legal experts who can move quickly down the legal enforcement route to get the best return for your business.
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Susie Hughes © Shout99 2014