Late payments can be a problem for all business owners, no matter how big or small the business. They can disrupt both your cash flow and ability to plan ahead, and the longer it takes for your customer to pay the more likely it is that they will not pay at all. Thankfully, there are simple, cost affective steps that can be taken before considering the more expensive legal routes. These methods should both put pressure on the customer and encourage faster payment.
Carry Out A Credit Check
Before agreeing to take on a new customer the first thing you should do is carry out a credit check. By doing this you can be a lot more certain of a customer’s reliability before you have even began to conduct business. Don’t just do this for new customers however, as your existing customer’s circumstances can easily change. Once you have confirmed that your potential customer is credible then you can begin to agree on credit limits and time scales before your first transaction takes place. The law sets a default credit period of 30 days from the date that there goods/services were supplied or the date of invoice, depending on which comes later. The best practice is to put all of your terms and conditions agreed in writing, that way everybody knows the score and you have something to fall back on if you were to eventually take legal action.
Make sure that you issue your invoices as quickly as possible. The invoice detail needs to made clear and understandable, with strict payment dates stated and mentioning that interest will be charged on any late payments that are made. When a payment does become overdue then you should chase the debt immediately and persist with it as much as possible. Issue a written statement of account by post and by e-mail, and speak directly to the customer by phone if possible. Speaking to the customer directly adds a more personal touch and can put extra pressure on them to make the payment.
My advice would be to warn the customer that you will no longer supply goods or services to them until the payment has been made. If the customer is unable to pay due to a cash flow problem for example, then you could consider the possibility of agreeing to a payment plan.
This may seem like a lot of additional time and effort to invest, especially on top of the day to day running of your business, but on the plus side of things it will greatly reduce the risk of non-payment and potential borrowing fees to maintain your own cash flow. If you are actively chasing your customers for payment then they are not only reducing the risk of non-payment but in future they may begin to prioritise your payments.
Legal Action – The Last Resort
Then there are the more costly methods if you are willing to go down those routes. For example you can involve a third party such as a debt factoring or invoice discounting service in which you borrow against your unpaid invoices for a fee. If your customer still does not pay after much persistence, then you can use more formal means such as a solicitor’s letter or a debt collection agency.
Legal action can be very costly and should always be a last resort. Always think about your other options before you go down this route and make sure you have tried everything you possibly can. You would also be unable to recover any legal fees for debts that are under £5,000 so you should also remember this before taking legal action.
One final point is to remember that you should always pay your own bills on time!
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