“An ounce of prevention is worth a pound of cure” (Benjamin Franklin)
I have been intrigued by some recent discussions on social media where the original post has highlighted a problem someone has experienced with regard to being paid on time for services/goods they have provided. Over the last couple of weeks hundreds of empathetic comments have been added to these posts by people who have had similar experiences. Admittedly, there have also been a number of sensible suggestions and tips around the options available to try and recover payment from the customer but many of these tend to be reactive rather than pro-active.
To be able to comment fully and confidently on each case, one would need far more information, including documentation, correspondence, and the account history and so on. However, my mind has been focussed on what can be done right back at the very beginning of the relationship with the customer in order to try and prevent these situations of late payment arising.
These are my top tips for ensuring you have robust ‘front end’ credit control procedures in place to minimise the instances of being paid late:
- Check to see if your customer is a signatory to the Prompt Payment Code.
- You should request all new customers to complete and sign a carefully designed Credit Application Form, agreeing to your terms and conditions, including your payment terms. This does not have to be onerous and can be in the form of an on-line application.
- Reserve the right to charge late payment fees and compensation. This does not mean you have to raise these charges but the clause can often act as a deterrent.
- Know who your customer is. This may sound very obvious but you must find out their exact name and legal status (i.e. sole trader, partnership, limited company). Without this, you will not be able to check their credit status and you will not know who is liable for the debt should the need for legal action arise.
- Establish a written credit policy which sets out the rules and processes that you and your staff can easily follow when you are looking to open a new customer account. This does not have to be an onerous task and I have seen credit policies ranging from a single page to a large folder, depending on the size and nature of the business.
- Make sure your invoice well-presented, accurate and contains all of the relevant information your customer needs to be able to make payment to you without asking for further details. Also, make sure you send your invoice within 24 hours of providing the goods or services to your customer or else this could delay payment.
- For large value invoices, it is often worth making a friendly call before the due date to make sure everything is in order for the customer to make payment on time. If not, then you will still have time to put anything right for the customer. Late payment of significant amounts can have a devastating impact on your cash flow.
- Monitor all other payments that are due and take action as soon as an account is overdue. Often a prompt, polite, friendly reminder will do the trick. Follow up all promises of payment to make sure they are received and escalate the matter as necessary (as per the credit policy mentioned above) in the event of non-payment.
Kevin Artlett FCICM ACII
Pecunia (2016) Limited