It is vital that businesses explore the options available to them in recovering their outstanding debts before it is too late.
By reading this you will hopefully improve your own debtor collection. See the late payment excuses below for good replies to the "cheque's in the post" excuses!
One of the most important things for a business, of any size or type, is to have is a credit policy. A credit policy will help when considering new customers, or what to do if an existing customer has failed to pay on time. Have this policy in writing, referring back to it whenever needed, and stick to it.
Dealing with late payment and how to avoid it in the first place;
- Introduce a strict policy for debtor collection built around specific target dates.
- Make sure you have a proper application form/contract and terms & conditions that new customers will check and sign. If an account does go bad, it is vital that you are able to prove the trading terms, agreed between you and your customer. A verbal agreement will unfortunately</g> mean next to nothing when chasing someone for money.
- Assertively collect debts it is your working capital
- Take references up most do not. We are amazed at how many businesses fail to ask for references, how many fail to read and act upon any they get and how lax credit limit enforcement is when faced with "iffy" references.
- Buy a subscription to a credit reference agency early warning system. This is particularly important if you regularly open new accounts and or large accounts. It is so cheap to do and can save you, literally, thousands of pounds. Try Creditsafe
- Refuse to supply even if a "good " customer is over limits, call them and ask what the problem is. Do they have the invoice, delivery note and are they satisfied? If yes ask for your money. If they still don't pay consider issuing:
.1. Final warning letter - you will commence action if you do not hear within 7 days - this helps establish that the debtor accepts the debt.
6.2. Obtain a County Court Summons form from your local court; issue a copy of it with all details correctly filled in. (We are amazed at how many people go to the bother of issuing half filled out forms!)
6.3. Tell the debtor you will issue the summons in 5 working days unless they pay. If this fails:
6.4. Issue the summons to the court. After <g class="gr_ gr_210 gr-alert gr_gramm Grammar only-ins doubleReplace replaceWithoutSep" id="210" data-gr-id="210">judgment</g> is granted call the debtor for the money. If this fails:
6.5. Proceed with a warrant of execution - basically an instruction to the court to collect the money (they send a bailiff to do this). If this fails:
6.6. Consider a winding up petition if the debtor is a company or a bankruptcy petition if the debtor is a sole trader or individual.
6.7. Up to the last step above this is a relatively inexpensive way of debt collecting
- Build a collection system, use "Sage" or other accounts package or use a manual system with trigger dates for every invoice.
- Charge interest <g class="gr_ gr_203 gr-alert gr_spell ContextualSpelling multiReplace" id="203" data-gr-id="203">its</g> your money.
- Go to the customer's premises and demand to meet the owner, MD or finance director. Say you will not leave until the company gives you a cheque, even if its post dated.
Remember a good customer who does not pay is not a good customer long term!
The cheques in the post! Inevitably the excuses come out - see both sides of the argument below. Also see legal action page for the opposite viewpoint!
Answers to late payment arguments
Q: "We have not got your invoice please send a copy".
A: Take their name and position in the debtor company. Fax, post and email a copy, then call for the person you spoke to and ask when payment will be made.
Q: "The cheque is in the (ubiquitous) p<g class="gr_ gr_198 gr-alert gr_gramm Punctuation only-ins replaceWithoutSep" id="198" data-gr-id="198">ost"</g>
A: Where, when and by whom was it posted and what class of stamp was used? Set a reminder in your diary to call again the next day or two days if sent second class. Again find out why the cheque has NOT been posted. These days online banking is much more common and "faster payments" mean that you should be able to be paid the moment that you request it. Maybe set up a text alert on your bank account that can tell you when a payment has been sent. This can ensure that you are not having to constantly check your online bank account.
Q: "We can only pay you when a large debtor pays u<g class="gr_ gr_194 gr-alert gr_gramm Punctuation only-ins replaceWithoutSep" id="194" data-gr-id="194">s"</g>
A: Get the name and contact details and call the debtor <g class="gr_ gr_229 gr-alert gr_gramm Grammar multiReplace" id="229" data-gr-id="229">yourself</g>, check out the story, is it true? If yes ask the debtor when they envisage paying some or all of the money. Then set a reminder in your diary to call the customer when payment should have been received.
Q: "We cannot pay we are at the bank limit", or "the bank is not helping us we have a <g class="gr_ gr_197 gr-alert gr_spell ContextualSpelling" id="197" data-gr-id="197">cashflow</g> problem".
A: Ask if they know about s123 and s214 Insolvency Act 1986 (insolvency test and wrongful trading) write pointing this out. Tell them to look at our website www.companyrescue.co.uk. Refuse to supply until an agreement for payment is reached.
Q: "The person responsible for payments is away"
A: Ask the person how other essential payments are made such as utilities and wages. Get a commitment to pay you too - even some on account.
There are many more excuses but all add up to the same thing - if the customer cannot pay to your terms they may be insolvent. So beware. If they are a key customer go and see them; talk together about a plan to recover the position. You may accept staged payments over time provided that new supplies are paid to terms.
If they are insolvent and readily admit they have problems with the bank and the crown then steer clear until the position is resolved.
Be terrier like, never let go until the debt is paid (even in stages) or they have gone into an insolvency mechanism. Then get full details of the liquidation, receivership, administration or company voluntary arrangement. It may still be possible to get your money (particularly in CVA or Administration). If you want advice on such insolvency situations email us.
Consider all of the options available to you before beginning legal action. Sometimes this option will be successful and force your debtor into acting positively. This will not always be the case however. Unfortunately taking legal action can often prove to be the most expensive & ineffective option.
Discuss your debt with an expert on debt collection, who will approach your debtor on your behalf. The debt collector will act in your best interests, with a view to ensuring that your debtor pays their outstanding balance as quickly as is possible.
Look at our page on company debt advice for more information.
Thanksto DDS Collections who contributed to this article. You can call 08009700539 and speak to Chris Richardson. You can also visit www.dds-uk.co.uk and click on Business Debt Collection.
If debt collection is a constant problem and you are always chasing companies that are good for the money but are just very very slow at paying then there are other ways of improving your cashflow. It may be that you can get advance payments on your invoices or your ledger by being lent the money. This is known as invoice finance and can allow your business access to the working capital. There are lots of variations on the theme of getting paid in advance for money owed to your business. See more at www.companyfundingoptions.co.uk