Pictured above: Kathryn Bolton
In times when profits are squeezed, cash flow becomes life-blood
to small, owner-managed companies. And while suppliers want prompt
payment, customers are trying to delay as long as possible. Local
law firm Andrew & Co LLP says it's a common vicious circle that
leaves suppliers fretting over late payments while trying to keep
customers on-side.
"It's about pre-empting problems that could arise," says
commercial solicitor Kathryn Bolton of Andrew & Co LLP.
"And this means clear, fair and reasonable terms of business
and ensuring the customer knows them. The customer must also be
clear about price. If a charge or fee is based on time, suppliers
must keep customers informed of time spent, reminding them what
that means in terms of cash. It's also worth considering
interim billing, as it helps both the supplier's cash flow and
avoids a large debt accumulating for the customer."
She says that for many firms, getting bills paid promptly is a
mixture of carrot and stick, and advises that terms of business
contain sanctions for late payment by providing for reasonable
compensation and interest on the debt.
Other top tips from Kathryn include:
· Invoices should be delivered
promptly; an invoice delivered a month or more after work
completed/goods supplied can cause irritation.
· The invoice should state clearly
when payment is due: customer accounts departments cannot be
expected to be familiar with all suppliers' terms of business.
· If invoices are not settled by the
due date, an efficient credit control system must take effect. It
should not begin with threats; an early aggressive stance may
undermine good relations and be counter-productive. Start with a
gentle reminder and move up through the gears.
· If the invoice remains unpaid the
creditor should take no action without first running a credit
control check on the debtor; there's no point wasting time and
money chasing someone who is insolvent.
· If the debtor is solvent but likely
to defend the claim, the creditor should discuss their options with
a solicitor, which might include court action or mediation.
· If the claim is simple and unlikely
to be defended, a creditor could consider a 'DIY' approach either
in the traditional way through the small claims courts
· When chasing another business or a
public sector body for payment, the creditor has a statutory right
to interest and compensation, even if their terms of business say
nothing. Under the Late Payment of Commercial Debts (Interest) Act
1998, interest is payable on debts that are not paid within 30 days
of the due date at 8% above the Bank of England base rate. In
addition, compensation is payable on a scale from £40 for
debts under £100 to £100 for debts of £10000 or
more.
Kathryn adds: "Credit control starts with clear, fair and
reasonable terms of business that provide effective tools for
enforcement. They are the foundation of good customer relations and
should be given the priority they deserve. But they also need
reviewing on a regular basis, as both business and the law change.
An expert can ensure they're unambiguous and will achieve the
desired result."
If anyone has any concerns over their terms of business or late
payments they can contact Kathryn on 01522 512123