Cash flow continues to be one of the biggest problems facing businesses in the current economic climate.
A delayed payment from a client naturally has a knock on effect on your business and your creditors, which impacts their cash flow and has a knock on effect to their creditors. And so on through the business food chain.
So what is the answer?
Here we discuss three simple steps that businesses of all sizes and from all sectors should incorporate within their credit control processes.
Step 1: Terms of sale
Set things up correctly in the first place by putting the terms of sale in black and white. Agreeing a sale by word of mouth or even a simple document can come back to haunt you. Firstly, you must know who you are dealing with, check out the exact name and legal status of the business you are selling to. Secondly, terms of sale must specify payment terms, retention of title where sale relates to goods, interest charges for late payment, and cost charges based on methods of payment. Most importantly, the terms must be made clear to your customers before you enter into a “contract” – the back of an invoice is too late! It is easy to get a solicitor to draft a terms of sale template which is bespoke for your business, and this will undoubtedly help ensure you are top of the pile when it comes to getting paid by a debtor.
Step 2: Internal credit control process
It is imperative that a resource is dedicated to credit control. It doesn’t have to be a full time credit controller, but does need to be incorporated in somebody’s job description and responsibilities, for example, by dedicating a couple of hours every morning to the issue of credit control. The most effective way to chase for payment includes the following steps:
- Most businesses wait until an invoice becomes overdue to call a debtor. A courtesy call a week before the payment date can help remind them and also serve to check they have received the invoice and that there are no issues with it. Always be polite, pleasant, courteous but assertive – it’s a business you’re running after all and not a charity. Let the customer know that you appreciate that they are true to their word and that they will pay when they said they would.
- Chase by phone as soon as an invoice becomes due, record what the debtor tells you about the impending payment and ring again and again and again! Quoting each time what you were told last time about the payment. It is a well-known fact that the suppliers who are persistently chasing payment almost on a daily basis are the ones that get paid first.
- Don’t be afraid to offer to be paid by credit card if you are set up for it (ask your bank about it if you don’t yet have the facility), or agree payment by reasonable instalments if your business can afford it.
- Throughout the process, make sure the client is flagged as high risk to all the relevant people within your business; the worst thing you can do is to sell more services or goods to someone who already can’t afford to pay you.
Step 3 – Consult with a Debt Recovery Specialist (DRS)
Seeking legal advice might seem costly, but a specialist debt recovery firm like Else Solicitors LLP will discuss all the options available and often an initial letter from a solicitor will be enough to prompt payment. If not then a DRS will take you through the escalation process and help you decide the severity of the action that you wish to take including any claims for late payment interest and compensation.
If a debt then becomes disputed, and communication between the customer/client and supplier is making no progress, a law firm can then be engaged to seek payment of the outstanding debt. Again, there are several options that should be discussed, starting with communicating with the debtor with a view to agreeing a settlement, taking legal action or attending mediation with a view to agreeing settlement.