Debt recovery is a fact of life for many businesses. Almost a third of small businesses (30%) surveyed told the Federation of Small Businesses (FSB) that they had seen the late payment of invoices increase over the last three months, with at least 8% warning that the problem has become so bad that it was threatening the viability of their business. So, what can you do to maximise your chances of getting paid on time?
The first thing to remember is that effective debt recovery does not start with the receivables or credit control team. Making sure a customer and terms are set up from the initial sale is paramount in case you need to rely on what you agreed at a later stage. There are two critical pieces of advice to bear in mind.
Know your customer
Has your risk team carried out sufficient due diligence and identified the correct legal entity of the customer? A check with Companies House is free and will confirm the entity and other key information such as notices to strike off or intentions to dissolve. If your customer is a sole trader, have you seen and verified true identification?
Has the customer been informed of credit and repayment terms before an order is accepted? Ensure these are documented and if possible, get terms and conditions signed off by the customer.
Credit control – how effective can you be?
Once you’ve invoiced your customer, there are a few things you can do to make sure you are paid – and paid on time. Here are five pointers.
Take a pro-active approach
The debt may not be due for another seven days but is your customer ready to pay on time? Calling or e-mailing the customer a courteous reminder before the due date may flush out any reason why the debt will not be paid. Ask the customer to let you know if there is any reason why payment won’t be received on time.
Have a structured approach to recovery
Customers may have different credit terms but once an invoice or debt falls overdue, a standard approach to the recovery process should be adopted. For example, telephone chasers and set letters on specific days such as day 1, day 5, day 12 and day 19.
Leave no doubt
Your intentions in your letters should be clear on the consequences of non-payment such as charges and interest to be added to the debt and potential legal action.
Don’t dilute the threat
Continually threatening legal action but then not seeing it through sends a clear message that your customer has plenty of time to pay without consequence.
Concern about legal costs
If your own terms and conditions do not cover this, remember that most, if not all, costs for undefended pre-legal and legal action are added to the debt and are recoverable in accordance with The Late Payment of Commercial Debts (Interest) Act 1998.
Still unpaid? Give your trusted legal advisor a call to talk through your options.