28 March, 2019
You can have all the ingredients for a successful business - a great product or service, happy customers and dedicated staff, but if the cash is not coming through, it can crumble.
Currently, British business is continuing to suffer from a damaging late payment culture and SMEs are amongst the worst hit. A Liberis survey of over 400 SMEs across the UK revealed that a staggering 72% of small businesses spend three days a month chasing bad debts.
So what are our top tips to avoid this?
1. Know Your Customer - Who Are You Selling To?
Businesses can often become tempted by the excitement of a new customer or clinching a sale, then overlook the basic questions and checks that should be asked or done. This can lead to significant problems later, particularly if you need to locate a debtor.
One way to know your customer from the outset is to set up a credit application form, which must be completed. This could include their full business name, business type, any trading name and how long they have been in business. In the case of limited companies, you could consider setting up a Personal Guarantee.
By doing so, you can flag up any potential issues and work to alleviate them at an early stage.
2. Conduct Credit Checks
Positive cash flow is the key to a healthy business, and if you are to extend credit to a customer, it is essential that you understand their creditworthiness.
Numerous organisations will provide you with a credit check for a fee. Most of which include a credit score, in which a higher number indicates a lower risk. Further, Credit reports often include details surrounding payment history and terms. This can in turn, allow you as a business to assess the risk and make an informed decision about potential customers.
3. Create Clear Terms & Conditions
Terms and Conditions can be a vital part of proving a debtors liability in the event of a dispute, however they must be clear, in writing and understood by all parties to be wholly effective.
Remember to also include terms, which detail Retention of Title, your right to charge statutory interest, and any applicable late payment penalties.
Once you have clear, robust terms and conditions, publicise them on your website and send a copy of them upon the initial enquiry and with all invoices. This will eliminate the potential for debtors to claim they had never received them.
4. Invoice Properly and Chase Regularly
It is vital to avoid granting customers any opportunity to delay payment. An incorrect invoice, whether it be regarding figures, payment terms or job details, can result in problems when it comes to this.
Once the invoice has been checked and sent, another top tip is to contact any customers who are historically late payers and simply ask if it has been received. Whilst this may be time consuming in the short term, it can save time and money in the long term should the debtor claim it was never received.
Create a spreadsheet to log overdue payments and when they became due. This will in turn allow you to chase more efficiently and regularly in order to minimise the amount of long overdue payments.
We still have debtors, what next?
Some debtors, even if the above procedures are followed, will always avoid paying their debts. As a result, should you find that debtors are refusing to pay and ignoring any attempt at contact, the team at Forbes Collect can help. Please get in touch on 0333 207 1130 to learn more about our services, and we would be more than happy to assist you.
Learn more about our Forbes Collect department here