How to avoid late payment in business

Every business person knows cash is king when times are difficult, so any delays in payments from customers can put pressure on cashflow.

You’ve probably heard these before: ‘the cheque is in the post’, ‘the person who deals with payments is away’ or ‘our systems are down’, but how can you stop these excuses and start receiving those long-awaited payments?

Here are a few tips to help improve debtor collection:

  • Always ask for references and follow through. It’s surprising how many companies don’t check up on potential customers before striking a deal.
  • Have a proper contract with terms and conditions, detailing the trading terms and payment which new customers need to sign. A verbal agreement is useless if you need to chase up money later on.
  • Refuse to supply any more goods or services to late payers and find out why they are having problems.
  • Revise your current policy on debtor collection/late payments and include stricter rules using specific dates and targets.
  • Subscribe to a credit reference agency that can provide early warning notices for your customers.
  • Instead of emailing or picking up the phone, visit the premises and speak to the manager or financial director face to face to sort out the problem.  Of course, politeness works and being rude and aggressive will not help.
  • Introduce interest charges on payments.
  • Solicitors will often send a letter on your behalf for a small fee that can sometimes focus minds.

If all else fails, send them a final warning letter stating you will apply to the county court to issue a summons if they don’t pay up. If a court judgement doesn’t work, obtain a warrant of execution and a bailiff will go to collect the payment on your behalf.

The last resort should be issuing a winding up petition, which can work out to be very expensive.  However, this can only work if there is absolutely no dispute about the service or payment.

If you suspect a customer is in financial trouble, go and see them and negotiate a repayment plan. If they are insolvent and enter a formal procedure like a CVA or administration, you may still be able to get some of your money back.

The best way to ensure your company stays in business is to focus on improving cashflow and keep those payments rolling in.

Anna-Lisa Searle writes for turnaround and insolvency specialist firm, KSA Group, and is a contributor to Rescuing struggling companies since 1997, KSA Group was a finalist in this year’s Insolvency & Rescue Awards for Corporate Recovery Firm of the Year 2014.

This information should not be interpreted as financial advice. Commercial mortgage rates are subject to change. Speak to our advisors for a mortgage illustration.