Getting Paid – Business Finance
A few statistical facts:
25% of all business failures are a direct result of cash flow problems.
90% of business owners say they would pay their suppliers promptly if they got paid on time.
33% of Ltd companies pay their bills within 30 days which means that 67% of limited companies don’t!
It doesn’t give you much confidence in the legal rights of small businesses (those with fewer than 50 employees) to charge interest on the late payments of debts after 30 days (if there is no alternative credit arrangement), especially if you need rely on that client for continued work. So what can you do?
Five Simple Things
1. Put your payment terms on your quotation.
2. Agree payment terms when accepting the order.
3. State agreed payment terms on your invoice.
4. Phone to check safe receipt of invoice and when payment will be made.
5. Before doing business Check Them Out!
The extent of the investigation will depend on the value of the sale to your business. You may want to pay for credit check. Otherwise you can ask your prospective customer for a bank reference, this is unlikely to tell you much more than when the account was opened but it helps to build a picture.
Do confirm company name and legal status. Remember when trading with a Ltd co, the liability lies with the company not the owner unless you can negotiate a personal guarantee.
Get home addresses of directors or owners and ask for a couple of trade references. Phone rather than write for a reference; specifically asking up to what level of trade credit that the customer is considered to be a good risk for. People will naturally give you a more accurate picture over the phone than they would in writing.
Collecting the money without losing the customer
Be firm and persistent. When talking to the customer use assertive verbal techniques. The first phone call (to check they have received the invoice) is a great opportunity to ask for reassurances that your client is happy with the provision of the goods or services delivered. If something is awry then here is your greatest opportunity to put things right.
If the invoice is not disputed then in subsequent calls try to find out why payment is late. If it is due to a cash flow problem you may like to suggest staged payments with an immediate down payment.
Continued delays and broken promises can be really irritating, but don’t take it out on the poor accounts clerk; instead speak to the chief. Do make a note of the outcome of all conversations; with whom, date, time and any excuses. If a cheque has been raised asked for the cheque number and date it was sent. Tell them that this is for your records!
Avoiding Using the Law
First of all remember to put your payment terms on your quotation, agree payment terms when accepting the order, state agreed payment terms on your invoice, phone to check safe receipt of invoice and check when payment will be made.
If your debt is undisputed and it is under £10,000 make use of the small claims court. Pick up the claimant forms from your local magistrate’s court, complete them using all the recorded information above. Then photocopy the forms and send them to your client with a note to say that should you fail to receive payment by a due date, this claim will be submitted to the court. Ouch!
If your invoice is disputed you may like to exercise your Alternative Dispute Resolution (ADR). Types of ADR used in commercial disputes include adjudication, early neutral evaluation and expert determination. It is worth having ADR written into your trading terms and conditions.
Making the Legal Process Work for You.
When all else fails seek professional help, be certain there is no dispute, do make sure you keep all copies of correspondence, emails and telecoms. If appropriate your solicitor will send a formal letter threatening to take legal action to recover the debt or to start bankruptcy or winding-up proceedings. Be sure that the debt is worth the time spent fighting the case and the cost of litigation.
And finally just keep asking. Last year I had a £200 invoice outstanding for almost 12 months. I had asked for the payment several times and had almost written it off. Then when I was finishing off my end of year I asked again … and it was paid. Yay! Don’t stop asking – however little. The £s look after themselves when you look after the pennies.