Victory for Local Asbestos Victims - Defeat for Insurers
25/11/08
Do not let the credit crunch crunch your business - keep a rein on your debtors
Tuesday 25th November 2008
During this time of economic uncertainty it is easy to accept that most customers will pay late and that some will not pay at all. With daily business demands and Christmas looming it is easy to put off overhauling your contracting and credit control systems but this could be fatal to your business. Cash flow is survival, to your business and your customers and when money is tight, invoice payment is frequently delayed. So, how do you make sure your invoice is paid first, to keep your cash flow healthy?
1. Always be clear exactly who your customer is.
- Is Mr Smith is trading on his own, in a partnership or working for a company? Is he a director or an employee? Only take orders from someone you know is authorised to place them. Is your contact information accurate? If you eventually have to sue, you will need a postcode, so get it right at the start.
- Address your contract documents, invoices and correspondence to the person/organisation who will be liable for the bill.
- For larger deals, check Companies House (www.companieshouse.org.uk) or use a credit checking agency to assess risk? Can you obtain directors guarantees so that if the company goes under you can claim from the directors personally? (These are stand alone documents which need careful drafting.)
2. Have terms and conditions which work for you.
- Check them regularly to ensure they keep up with changes in the law and developments in your business.
- Make sure your terms apply in every contract. If you do not ensure your terms are the basis of the contract at the point the contract is formed, you cannot rely on them later. So, send your terms with your quotation; send your terms with your acceptance of order; limit strictly the people in your business who can agree a variation of your standard terms and insist that any variations are recorded in writing. This will stop customers being able to claim that someone said they could have longer payment terms.
3. Pursue interest on overdue invoices.
- Decide what rate of interest to charge and when it will kick in and put it in your terms and conditions. If you do not have a contractual rate and your debtor is a business you can claim interest under the Late Payment of Commercial Debts (Interest) Act at 8% above the base rate.
- When you send your invoice, remind the customer that interest will be due on late payments. Remind the customer that interest is mounting in any your letters or conversations chasing payment. You may want to insist on payment of the interest before accepting another order from the customer.
4. Ensure you can get your goods back if the debtor doesn’t pay.
- Have a valid retention of title clause in your terms stating that the goods are yours until paid for. You can recover them if they are identifiable and have not been made into something else. You have to act quickly and your terms need to be drafted carefully allowing access to your customer’s premises.
5. Have a clear credit control procedure in place, follow it and be consistent.
- Your customers should know from the outset exactly when you require payment and what you will do if it is not received.
- Send all invoices in the same way so it is hard for the customer to say that they did not receive one particular invoice.
- Stick to your procedure. If you do not take it seriously, neither will your customers. Avoid them being able to claim that you frequently allow longer for payment despite what your terms say by being vigilant and insistent.
- When chasing payment, ensure that you speak to a person with the power to make the payment. Be polite, but do not let yourself be fobbed off.
- Keep a written note of all telephone calls and put any agreements to pay by instalments in writing, making sure it is clear what happens if any instalment is missed. Keep copies of all contract documents, the invoice and all chasing letters sent in case you need to sue.
In an ideal world all customers would pay in advance or on time. With the current crunch this is becoming less likely, so maintaining a healthy cash flow will be more challenging. Do not let your business get crunched - meet that challenge early by finding the time to consider your terms of trading and credit control procedures.
This article gives a general overview and cannot be relied upon in any particular case. The commercial team at AES Winterbothams LLP are just a call away and are ready to discuss your specific business needs. They can also provide in-house training, seminars and workshops on request. Please feel free to contact Susan Castle or Catherine Green on 01453 847 200 or e-mail cjg@aeswinterbothams.com.