Slow and non-paying customers not only affect your cash flow, they also divert your energies away from growing your business. So it’s important to get this under control and do everything you can to reduce the possibility of not being paid for the work you do.
Here are a few steps to help you speed up payments that are owed to you:
Get clear Terms and Conditions Ensure that your standard terms and conditions include a right to charge interest for late payment and a right to recover the costs of debt recovery. A customer who realises that it will cost them more money if they fail to pay promptly will be encouraged to do so.
Ask for payment upfront Ask for a deposit, advance or payment on account before supplying goods or services (or a personal guarantee). Or ask for a guarantor. If your business accepts BACS or CHAPS payments you avoid the risks of accepting payment by cheque.
Who owes you the money? At the outset, make sure you know whether it’s a company, a sole trader or individual, a partnership or another entity that you are doing business with. Knowing who your customer is will ensure that any action you have to take is directed at the party responsible for paying. If you are chasing the wrong party you will not get paid, and you even risk incurring further costs in the future e.g. if you issue court proceedings against the wrong party. In addition, certain legal principles apply to particular entities.
Check out your counterparty Do they have the money to pay? Carry out credit checks; check their status on the Companies House website (or if an individual, partnership or sole trader on the Insolvency Service website).
Chase and chase again Effective credit control will ensure that you do not get a reputation for being soft with customers who ‘forget’ to pay. Polite but timely invoices and reminder letters will help maintain your cash flow without sacrificing your business relationships. For customers who repeatedly fail to meet your payment terms try to find out the reason why they pay late and see if you can come to a mutual agreement. If you cannot, consider tightening your payment terms or even stop supplying those customers who repeatedly pay late. Bad customers can threaten the continued survival of your business.