Easing The Financial Business Tensions
Evaluating business strategies is always a key focus, particularly at the start of a new year and every business will from time to time, encounter issues regarding late payments. Often, business owners will feel uncomfortable about the idea of confronting bad debts directly, particularly if this relates to a long-standing customer.
Too firm an approach and there is a risk of losing a valued client. Then again, too soft, and the business relationship could be taken for granted with the debt not taken seriously enough by the customer.
Late payments can cripple a business and yet a lot of companies shy away from taking legal action to avoid losing the customer. For most people avoiding the final legal step is always the preferred route.
The sector has had its fair share of ups and downs and there are many who will undoubtedly have some horror stories, particularly from the dark days of recession.
For SME’s it literally can be a crushing experience with financial stress and worry overriding the business as a whole, especially for sole traders and installers who rely on subcontractors. Overdue payments can often be avoided however with some clear procedures in place. Billing promptly and efficiently for trade accounts means that a business is more likely to be paid in the same way. As for supplying end customers, a deposit and stage payment process can seriously help to reduce risks.
Stand and Deliver
A clear set of terms and conditions of business lets everyone know where they stand, with many customers acknowledging that it gives safe passage in terms of any potential misunderstandings regarding payment. Simple contracts will clearly communicate conditions for both parties to deliver on their respective sides of the deal.
Drawing up credit control procedures is important as they ensure that customers can know what to expect regarding notification and the subsequent recovery process. Unless otherwise agreed, a payment is legally classed as late after 30 days.
It’s Good To Talk
Negotiation is an integral part of the entire process and the longer the business relationship has existed then the easier this should be for a resolution.
Discussing customer’s individual situations is important, and trying to evaluate the reasons behind late payment are key. Having a full grasp of the circumstances ensures that there are roads that can be followed to allow them to make suitable methods of payment or instalments.
A flexible position will help to maintain a good business relationship when things turn around for the customer or debtor.
If All Else Fails
Knowing what steps to take is critical to the survival of a business, so it is always worthwhile to have a business plan in place for this eventuality.
Perhaps small debts could be written off or late payment penalties waived, however it is better to know quickly if the debt has little chance of being cleared. Writing off debts does also perhaps set a precedent where others may try to follow.
Without a secure guarantee to be paid, it is then time to evaluate the ultimate costs of the debt to a business. If the communication channels completely break down, it then probably is the time to call in the solicitors.
The Cost of Recovery
Interest, costs and in some cases the cost of collecting a debt can be claimed under the Late Payment of Commercial Debts Interest Act. At the moment it is possible to claim statutory interest at 8% over base rate, along with £40 – £100 for each invoice, depending on the invoice value.
Interest can also be claimed on outstanding debts that were not paid within an agreed period, but that have subsequently been cleared.
However, being firm with payments in the first place, by sticking to agreed terms, has to be the best way forward to secure recovery and continued business.
Helen Duval 2016