Services for you and your business

RSW

Credit Control

Protecting your business's revenue

Overdue payments can be crippling for any business. While customers have a right to receive goods or services within agreed deadlines, it is your right to be paid on time. Good commercial practice starts with an effective credit policy protecting your revenue.

The cost of not protecting your business can lead to reduced profitability, cash flow problems and even insolvency.

Your Credit Control Policy

Introducing a Credit Control Policy into your business needn’t be difficult or require an expensive software package. Simply keep a copy of all your invoices in a lever arch file, and check every week that none are overdue. When an invoice becomes overdue, act immediately!

Any excuse

Ignore the excuses as to why you have not received payment, or why payment is delayed from your customers. However legitimate these excuses sound, none are valid. Typical excuses given by late paying customers:

• Our Terms are 90 days
• I can’t sign cheques
• Invoice has been lost, or was never received
• We can’t accept faxed copies
• We only pay on originals
• Computer system down - cannot raise cheques
• Next cheque run is next month
• Invoices disputed
• Cash flow problems

Trade on your terms

By drawing up water-tight Terms & Conditions of trade, you can ensure that you trade on your terms - not those of your customers.

As a bare minimum, you’ll want to consider including the following in your Terms & Conditions:

• Payment period: The period of time from invoicing by which payment is due (normally 30 days)
• Retention Of Title clause: Under common law, the ownership of goods passes to the buyer as soon as the goods are delivered, regardless of when payment is made. By including a Retention Of Title clause, the goods remain your property until payment is received in full. This is an important protection to have: if, for example, the buyer goes bankrupt, you may be unable to recover your lost revenue, but you can at least reclaim your unpaid goods
• Late payment compensation: When late payment occurs on business-to-business transactions, the seller is not only entitled to the cost of the goods, but also to late payment compensation if this is included in the Terms & Conditions. For example on debts up to £1,000, the creditor is entitled to £40 compensation in addition to the original sum due
• Interest on late payment: If proceedings are issued on a debt, the creditor is entitled to interest of 8% above the Bank Of England base rate. However, by including an interest clause in your Terms & Conditions, you can claim interest as soon as a debt becomes overdue

It is vitally important to adhere strictly to your payment terms in order to protect the viability of your own business, and so debtors do not see you as a “soft touch”.

You must also make sure that your own Terms & Conditions are not overridden by those of your client. Here, the “last shot fired” rule applies: the last set of terms despatched prior to acceptance or delivery of an order will prevail over any previous ones.

Know your customers

It is important to build a clear picture of your customers. You can do this is by carrying out credit checks or other supplier references on new customers. Credit checks can be done online for a small charge, and some information is available for free from the Companies House website.

Where substantial transactions are involved, it is a good idea to collect important information from your customer using a credit application form. You should request trade references, and get in contact with these to build a better picture of your customer.

Be the first in line

In many cases, a customer in debt to you will also be in debt to other suppliers. The customer may be experiencing cash flow problems and may even go bankrupt. In such situations it is very much in your interests to get to the front of the queue, as those who delay in chasing their debts may well miss out altogether.

The key here is to act promptly. Initially, the debtor should be sent a reminder letter as soon as the debt becomes overdue. Seven days after that a second reminder should be sent. If after a further seven days no satisfactory response is received, the matter should be passed on to a debt recovery agency.

Be relentless when attempting debt collection

Don’t let some businesses abuse your goodwill by deliberately delaying payment. Late-payment and non-payment are habitual behaviours, and late paying customers are unlikely to change their attitude without pressure to do so.

Constant and rapid response is essential. You need to act as soon as a payment becomes overdue. Be proactive and vigorously pursue money owed to you by customers.

Pursue your debts, but don’t lose customers in the process!

There is a delicate balance to strike here: overdue invoices must be pursued, but without offending your customers and potentially losing business in the future.

We recommend you give gentle reminders to your client, twice in writing and once by telephone, before passing on debts to a collection agency. As a gesture of goodwill, some companies prefer to waive the late payment compensation and interest to which they are entitled.

They’re your customers so you are in the best position to judge the level of tact needed. That said, don’t be afraid to pursue an unpaid invoice: it’s your money!

Please do not hesitate to contact us on 01554 749144