How to chase debts without pushing your customers away

Cash is king for all businesses, but late payment is a growing problem: research published earlier this year found that more than half (57 per cent) of small businesses had waited more than 90 days for a payment, while 72 per cent had waited 60 days or more. 

Many businesses tread carefully when chasing their debtors as there is an innate fear that hassling customers for payment will make them take their business elsewhere.

Any business needs to know its clients and make a judgment call on when and how to chase debts. However, chasing debts shows that you are running your business well and can actually reflect positively on you. 

Some clients may deliberately wait until the court summons arrives; they expect it, it’s nothing personal and they will not hold it against you as a supplier (assuming of course that you wish to do business with them again).

A focus on the basics of credit management can liberate valuable cash which can be used in your business. Spending time chasing up debts should improve your cash flow, while carrying out an upfront review of customer credit terms should lessen the risk of late payment in the future.

Outsourcing debt collection, or having a dedicated credit control resource, can help. It makes the process more neutral to the customer and allows managers to pick up difficult cases almost as a third party intervening between their customer and the debt collector.

Here are ten tips to help you tackle late payment:

1. Review your trading terms and conditions to ensure they are fit for purposes and aligned with the type of customers you do business with. Consider whether you need different payment terms for different types of customer.

2. Review your trading history and bad debts. Assess the risks of entering into similar contracts with a similar type of customer.

3. Carry out credit checks on organisations before doing business with them. For example, depending on contract size, ask for bank and/or trade references, pay for a credit search, or as minimum check Companies House for any registered charges. 

Ensure you have their full address and contact details in case you need to chase non-payment. As a guide to their intentions, check if they have signed up to the Prompt Payment Code; this is a voluntary code developed by the Department of Business, Innovation and Skills which sets out a statement of commitment between a business and its suppliers regarding prompt payment and is gaining momentum and recognition.

4. Consider setting maximum credit limits.

5. Ask the directors/partners to give personal guarantees, if the customer is a limited company or a limited liability partnership.

6. Always provide written terms and conditions and ensure they are agreed by the customer before any goods and or services are provided. Terms and conditions on the back of the invoice are too little, too late.

7. Set out clearly what goods or services you are providing and when payment is due.

8. Ask the customer to sign an acceptance form when goods or services are supplied, to minimise the possibility of a dispute arising.

9. Ensure invoices are issued on time, sent to the right person and set out clearly what you have done, the amount owed and when it is due.

10. If the customer is late paying, find out why and if necessary issue a reminder within the timeframe set out in your terms and conditions.

If you do not have a clear process for managing cash flow your business will suffer. Applying and constantly reviewing this process should help you to avoid incurring significant late payment problems.

Will Cookson is a partner at Harbour Key LLP.

Share this story

Close
Menu
Send this to a friend