Managing Late Payments

Credit Control: Managing Late Payments

1) Be Clear About Payment and Credit Control Terms

Avoiding problems with getting paid begins with agreeing up front when and how you expect your customers to pay. Leave your requirements vague and customers will be vague about paying. So write very clear payment terms into your terms and conditions, but include something to allow for the cost of debt recovery plus interest.

• Take advantage of the new Late Payment of Commercial Debt Legislation, which has revolutionised debt collection for businesses and recommends an interest figure of 8% above base rate be levied against late payments.
• Set an interest rate that is high enough to prevent people using your money as alternative cheap finance, suggesting that 8% is not enough to compensate for the real cost of late payment. Write your own figure into your T&Cs, circa. 2% per month.
• In addition, you can claim 10-15% as a general rule as compensation for debt collection costs and no court is likely to argue with that.

2) Know Your Clients

In short, don’t do business with anyone you haven’t checked out first. How thoroughly you check them out should be in line with the value of the work. If you’re a builder taking on a big job, it’s worth taking a lot of trouble to make should the client is good for the money.

Make sure you have all their contact details. See if they’re registered with Companies House. Where proactive credit control is needed, check out their bank account. Investigate whether they’re creditworthy. Find out as much as you can about them and get to know them in person. The more you know about your customers, the better you’ll be able to judge whether they’re good for the money, and the better they know you, the less likely they’ll be to default.

3) Protect Yourself

What’s ‘prostitute theory’? It’s the principle that the desire to pay for a service diminishes after the service has been rendered. You might just as well call it ‘undertaker theory’, because undertakers are most at risk from it.

If there’s a risk that your customer might take your products or services and then forget about paying for them, don’t be afraid to take payment up front. After all, that’s what happens whenever you buy something from a shop. If the services you render are more complicated than that, you can ask for part payment up front. Bona fide customers won’t balk at that – and if they do, you might want to think twice about doing business with them.

4) Nip Late Payments in the Bud

If you have a customer who’s late with payments, be brave and go and see them before it’s too late. Watch out for the warning signs, like payments lagging further and further behind their due date, get in touch early.

• The longer you leave it, the more likely you are to have a real struggle getting paid. People move jobs, the trail goes cold, your relationship dies. Go and see your customer at the first sign of trouble.
• Most people don’t want to be confronted over late payments and they will act to settle it promptly. You won’t sour the relationship. There’s nothing wrong with asking for money – it’s why you did the job. It’s also important for those customers that do pay on time that everyone is treated the same.

5) Keep Credit Control Civilised

You’re much more likely to get a favourable response if you can remain polite and cool. This is another good reason for acting early. It makes it a lot easier to keep your emotions in check. If you want to maintain the relationship and get paid, then do not put clients on stop. Try to keep it from court. Be polite and reasonable. A lot of our clients continue doing business with their customers even after having someone act on their behalf.

6) Use a Collection Agency

If you do find things slipping beyond your control, or you just feel uncomfortable asking for money, agencies like Town & Country can be a powerful ally.

There is a lot to be said for the ‘third party psychology’ of getting an agency to do the asking for you. People tend to take it more seriously and are less likely to try and get out of paying if they get a call from a collection agency. These experts can also help to run the credit checks you need before taking on a new client.