Many business owners talk of the problems caused by late payment of invoices by customers and clients. Holmes & Hills Solicitors offer a debt recovery service to help deal with this. But even better than being able to recover debts owed, is to prevent or reduce late, or non-payment in the first instance. Here are five practical tips to help you reduce late payment by customers in your business.
Make sure you know who your customer is before you contract with them. Is it, for example, John Smith, John Smith Limited, The Smith Partnership or John Smith trading as Smiths Builders? If it is not clear at the ordering stage, do not be afraid to ask your customer. Preferably get them to answer in writing. Once you have established who your customer is, consider carrying out a credit check so that you can assess their likelihood of paying your invoice on time. Ensuring you know who you are contracting with will make it easier to commence legal proceedings if that becomes necessary as a means of debt recovery.
Where a customer’s credit rating is poor, protect against non-payment by asking for either full or part payment in advance or consider insisting on a guarantee from a third party (for example a personal guarantee from the director of a limited company customer). In all cases, set appropriate credit limits and stick to them. Use a stop list for any customers that don’t pay on time. Also consider including a retention of title clause if you sell goods that are easily identifiable, in order that you can simply collect them if the customer doesn’t pay. Finally, if your profit margins allow it, consider offering a discount for prompt payment.
Make sure your terms and conditions are appropriate for your specific business. The best way to ensure they are is to have them drafted by a solicitor. Once you are certain that your terms and conditions are right for you, make sure they are incorporated in your contracts with customers. It is advisable to take legal advice on how to achieve this based on the specific way(s) that you do business. In any event though, it is advisable to make your customers aware of your payment terms as often as possible, so do send copies of your terms and conditions out at every opportunity (for example, with all quotes, order acknowledgements, etc). Having a strong set of terms and conditions in place will make it easier for you to recover debts owed to you in the event a customer does not adhere to the agreement you have entered into (i.e. by not paying monies owed).
Send your invoice as soon as you have done what you agreed to do for your customer. Being slow to send your invoice will simply increase the amount of time it takes you to get paid. Make sure the invoice is clear and accurate. Mistakes in invoices are another common reason why payments can be delayed. Incorrect invoices may also make it more difficult to recover debts and monies owed to you as these are more easily contested. Provide the customer with as many different methods as possible for making payment. The easier it is for them to pay, the less reason they can have for failing to make payment on time.
Act on unpaid invoices promptly. Have a standardised system for chasing late payments. This may include telephone calls, emails and/or letters at appropriate stages as the payment becomes overdue as well as putting the customer onto the stop list. Make sure everyone in your business knows when the trigger points for each stage are, is aware of when they have been reached and takes appropriate action. If the debt is not paid promptly, consider referring the matter and the recovery of the debt owed to a solicitor, sooner rather than later. Instigating a formal debt recovery process through a debt recovery solicitor can see your debt recovered quickly and for a minimal cost.
Finally, keep a record of what steps are taken to collect unpaid invoices and how effective this was. Constantly review the results, analyse them and adapt your procedures to improve your system.
Click here for more information on Holmes & Hills Solicitors Debt Recovery Services in Essex and Suffolk.
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