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 2020, and despite the pandemic, there were almost 16,000 County Court Judgments (CCJs) issued against businesses. The average value of each business debt is over £5,000, which is 79% higher than in the first quarter of 2019.
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.
Is sounds simple, but make sure you know who you are doing business with.
Try to find out the size of the organisation and whether they are a partnership, sole-trader, limited company or PLC. What is their full legal name and do they use any trading names? Conducting a quick Internet search for these names may reveal information you need to be aware of.
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. You can use this information to find who owns the business and verify that the person instructing you has the authority to do so on behalf of them.
Then throughout your relationship put a reminder in to recheck these details periodically. That way you can be alert to any warning signs such as overdue accounts, charges being registered against them or large drops in cash reserves which may indicate their business is struggling.
Prompt Payment Code.
Check if your business customer is part of the Government's Prompt Payment Code (PPC) where those signed up are obliged to pay small businesses invoices within 30 days.
The current signatories can be found on the PPC website.
Whenever possible try to request payment in advance. If this is not possible, attempt to secure partial payment (for materials etc.) or some kind of deposit.
With some larger business customers it can take a while for a new supplier to get onto their accounts systems. So starting this process as soon as possible can speed up future payments.
Invoice as soon as the order is completed, or on lengthy jobs gain agreement to do so at periodic intervals. Knowing there is a payment problem half way through a job is better than finding out at the end.
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 specific 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.
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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