Less debt, more cash

Cash is king in any business, we all know that. But how do you ensure that you are paid (and on time) for work you have carried out or for goods you have supplied.  This article will equip you with some of the tools needed to help minimise, or even eradicate, bad debt in your business, no matter the size.

Manage the risk

Do you know your client? Review your client’s credit – consider whether they would be prepared to complete a credit reference agency report or bank report.  It is easier to do this now than later on down the line when you are trying to gather evidence to enforce a debt.  However, this could be off putting for the client, particularly if the relationship is new so look at other resources and do your own research; websites like Red Flag and Companies House are a good starting point. Ask your own contacts whether they have had any dealings with this client.

Terms and conditions

Review them now. What are your terms and conditions? Do you even have any and are they clear, up to date or could they be misinterpreted? Make sure the client knows what they are. Do they benefit you and are they favourable to you i.e. consider shorter payment terms.

Set out clearly the scope of the work so the client is clear what is included (and not included) and ensure you make it clear what the costs will be if you are required to do work beyond the scope of the agreement.

Prepare to be flexible and negotiate with your client, particularly if the contract is of importance and you want to get off on the right footing. Ensure that the terms and conditions deal with retention of title, payment periods and interest for late payment and that they comply with legislation. Make sure there is a provision to vary the contract, ideally in writing, to avoid any later disputes. Finally, review your terms and conditions every 6 -12 months and update your clients on any changes.

Be prompt

Send your invoice as soon as the work is completed. If you are prompt with your bills, your clients are more likely to be prompt paying them. Ensure there is a written record of the bill being sent. If there any disputes over the work or the goods or the price the issue will hopefully be brought to light quickly rather than months down the line. If the work is likely to be long term, agree a payment plan with the client which helps them to manage their cash flow and helps you to manage yours; perhaps consider billing them in the middle of the month and at the end of the month.

Chase debts

Do not put this off. Strike while the iron is hot! You have carried out the work/supplied the goods and you are entitled to be paid.  Be polite, chase the client in person and discuss the reasons for late payment – sometimes there are legitimate reasons. Formulate a strategy to chase debtors and decide who in your business is going to take responsibility for chasing debts.  Ensure that you add on interest; that way the client may think twice about late payment next time. Make a note of any conversations regarding late payment as these may come in useful later on if the debt needs to be enforced.  On the 12th day after the invoice was due, step it up and request payment of the debt formally by letter or email, keep a record of the request and make it clear on what date you expect payment to be made. If that fails, and you reach the 19th day after the invoice was due, cease work, recall the goods (if the contract allows you to) and proceed with writing a letter of claim – this is a letter before taking Court action giving the client one final opportunity to pay up.

Keep on top of managing debt. If clients think you are not bothered about being paid, and being paid promptly, then they won’t be bothered either. Be proactive, not reactive and if all else fails consider taking specialist legal advice.

Julian Ireland, Partner and Solicitor in our Commercial Dispute Resolution Team can offer advice in relation to debts and the best way to enforce them.  Alternatively, if you want to tighten up your terms and conditions, Nesta Gresham a Consultant in our Commercial Team can provide your business with an MOT to ensure it is protected and operating effectively. Julian and Nesta and their teams can be contacted on 01582 878526