Non or late paying customers are unfortunately a fact of life for most small to medium businesses. While at best delayed payments can be annoying, at worst they will have a measurable and detrimental impact on the smooth running of your business.
Recent figures via the Official Statutory Register of Judgments has given an insight into the potential scale of the problems around business debts and disputes that have been escalated to the courts. The data shows that in the third quarter of 2018 there was a 32% increase in the number of County Court Judgments (CCJs) issued against businesses.
That's over 10,000 court judgments per month registered against businesses in England and Wales, with an average value of £3,072 each.
While there are fixed fee debt recovery services available to deal with most size B2B debts, needless to say it's more important than ever to make sure you have effective procedures in place for protecting cash flow in your business.
So, we wanted to share some of the proactive general advice that we've provided to our clients after helping them recover business debts owed to them.
Know your customer.
Make sure you know who you are doing business with. Be aware of the size of the organisation and whether they are a partnership, sole trader, limited company or PLC. Check if they use a trading name and if the person instructing you has the authority to do so on behalf of the business you will be ultimately be invoicing?
Limited company checks.
Make use of public services such as Companies House to verify your private limited company customers. When first considering doing business with them, verify their registered office, company number and trading status. Then throughout your relationship recheck periodically and be alert to warning signs such as overdue accounts, charges being registered against them or large drops in cash reserves which may indicate their business is struggling.
Whenever possible try to request payment in advance or at least a deposit. Invoice as soon as the order is completed or agree to do so at regular intervals if it's a lengthy job.
Don't hide your payment terms.
Include standard payment terms within your T&Cs and on your invoices, ensuring they are clear and reasonable. Make customers aware of these terms before they order, when you provide a quote and when an invoice is at risk of becoming overdue. Your invoice should also include details on how to pay you, such as your bank account or online payment information.
Get it in writing.
For large or regular transactions consider getting a contract drawn up and signed by both parties. At the very least ensure the main points of the order or transaction are in writing with evidence that it has been agreed by each party.
Documentation and a paper trail.
If you ever end up having to consider legal action, good record keeping will pay dividends. Everything from the original order, proof of delivery and late payment chases should be kept. Your solicitor will want written evidence and a chronology of events to proceed with a claim, so keep copies of any emails and notes of any telephone calls.
What to do when a client doesn't pay?
Implementing the above tips may help in reducing the chances and impact of late paying business customers. But even with the most vigilant owner, on-the-ball accounts team and strictest terms and conditions, you will still encounter customers that simply choose not to pay.
So your next step is to consider formal legal action to recover the amount owed, which usually starts with sending a Debt Recovery Letter Before Action.
Having robust Terms & Conditions, a consistent approach to invoicing, and a clear paper trail will help you get what's owed to you that much quicker and assist your legal claim should you ever need to get a solicitor involved.
Catalyst Law are team of legal professionals with over 20 years' experience helping businesses and people with their legal problems.
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