Debt Management

Very few businesses are lucky enough to have clients who pay their bill as soon as it is invoiced.

Successful cashflow management can be the difference between success and failure of a business. There are steps you can take to ensure the sound financial control of your business. If you do have to offer credit to your customers allowing them to pay after they have received your product or service then check them out beforehand. The extent of the assessment you make regarding the credit terms you offer a customer must depend on the amount of credit being offered relative to your overall turnover. A relatively small order may mean that the investigation may cost more than the profit you make and you therefore need to establish a policy of accepting or rejecting such risks. Often your franchisor will be able to offer some guidance with this and they themselves would have carried out thorough checks for any national account work that they may offer you so that they fully understand that company's payment policy.

If a customer sale is significant and they request credit then you will need to carry out your own checks. These may include bank references, trade references, sight of their latest financial accounts, a credit reference agency search or even a site visit to satisfy yourself that the customer has some substance behind them.

You may wish to start a new customer on a relatively low credit limit to monitor their payment history before considering increasing the available credit however you need to carefully assess the risk each time you review a customer's credit limit. You should be aware of the normal industry standards for your sector. There are various credit terms that can be offered to customers such as cash with order, cash on delivery, payment after a specified number of days or monthly credit with payment by a certain day in the following month. Legally small businesses can charge interest on late payment of invoices although this is a seldom used practice because they don't want to lose future business with a customer. You can encourage early payment by offering a cash discount although you will need to have good systems to closely monitor this and to make it clear that they are only entitled to the discount if they meet the conditions you have offered. Prompt invoicing is essential. I have heard horror stories from business customers who invoice once a month and they wonder why they have serious cashflow difficulties. You should wherever possible invoice on the day the service is provided or goods delivered. This is a sound financial practice which must take precedence over other administration duties you may have that day. Failure to do this creates the impression with your customers that you don't keep tight credit control and you won't mind waiting for your money.

Credit terms should be prominently
displayed on the invoice. As soon as the customer is late you should send a polite fax followed up by post chasing payment. If you don't receive payment or a response within one week fax again and follow up with a letter sent by recorded delivery.

A phone call should follow enquiring whether there are any queries with the account or with the goods or service provided. Find out the apparent reason for non-payment and try to gain a commitment to pay. If you are receiving the brush-off or have difficulty speaking to your contact when you call at different times during the day, you need to consider whether you wish to continue doing business with this customer and freeze any existing credit line until the outstanding matter is resolved.

Ultimately, go and collect the money in person and bank the cheque immediately checking that it has been dated correctly, signed and the words and figures on the cheque are both correct. If this fails, then ask your solicitor to send a formal letter threatening legal action to recover the outstanding debt or to start bankruptcy against an individual or winding up proceedings against a company. Take your solicitors advice which may include using the small claims court or even walking away from the debt if it is too expensive to pursue with little chance of a successful result.