Late-paying clients can heap cash flow problems on their suppliers and, in extreme cases, threaten their survival.
Apart from the ethical and moral issues surrounding late payment, tardy payers have a detrimental impact on all businesses, but smaller ones in particular.
Knowing what to do when a client reneges on a payment agreement, or delays payment beyond a reasonable time, is crucial to any business.
Here are my top 10 tips to any business worried about slow-paying clients, urging them not to wait until that unpaid invoice starts flashing red but to think about it well before taking on any work with a new client.
- Carry out a risk assessment – look online, at Trust Online and on the Insolvency Service website. What is the counter party’s reputation?
- Carry out credit checks with Companies House and credit reference websites.
- Make sure you know whom you are dealing with (eg company, sole trader, partnership, individual?).
- Make your Terms and Conditions robust and have a
comprehensive credit policy in place.
- Look carefully at the customer. If you suspect they pose a high risk, take that into account when formulating your Ts&Cs, or the way you are going to trade with that particular customer (for instance, consider agreeing direct debits to help with liquidity and certainty).
- Consider other forms of protection such as personal guarantees by directors (and of course insurance).
- Ask for a deposit or advance or for someone to be a guarantor.
- If the counterparty looks as though they have trouble paying, take immediate action. Address the situation as you go along. Send reminders; try to find out why the payments are late; perhaps tighten your terms.
- Be proactive in debt collection or you will be seen as soft.
- The longer you leave chasing the debt, the more they will think they can get away with it. When chasing debt, add chaser costs and interest (make sure these are in your Ts&Cs) and perhaps use these as leverage for speedy payment.
For help with drafting your Ts&Cs (or if you don’t have any!), for general advice or if you need to pursue a debtor, please contact Jay Sahota, Senior Partner and Head of Dispute Resolution at Jarmans Solicitors: email@example.com ; 01795 472291