Posted: 11th May 2015
To use an often-quoted cliché, a sale is not a sale until it’s paid for. You can make all the sales in the world, but if you don’t get the cash in, your business will fail. More businesses fail through lack of cash than from lack of profits, so it’s vital to keep that cash coming in.
Many small business owners feel awkward about talking to their suppliers about money, but if you follow a few simple guidelines, and get into the habit of chasing up debtors regularly, it needn’t be an unpleasant experience.
Honest people understand the need to get cash in, and do not mind being chased up. In fact, you can build up some good relationships through regular contact.
The following tips should help you to keep your credit under control!
1. Check out your customers
It’s a good idea to run a credit check on new (and even existing) customers. There are a number of useful sources online which can help you to do this, but free information is scarce.
Check out what information is available from your local business library. You can also use online business directories such as www.yell.com to check trading addresses.
Companies House – http://www.companieshouse.gov.uk/ – offers some limited free information – basis cane, Registered address, Company no, and filings details. This can be useful, but if you want copies of accounts and other filings, you have to pay.
Another useful source of information is trade references. These should give you up to date information about current trading patterns, but you should make sure that the referee is objective. It can be useful to ask them whether they are often called on to give a reference for the potential customer.
Finally, if possible, it can be very informative to visit a potential client in person – face to face contact can speak volumes.
2. State your terms clearly
Say clearly what your terms and conditions are, in writing, prior to the first transaction. You could consider including them with a brochure, for example. Your terms should also be stated clearly on invoices, but that is usually issued after the performance of the contract, so it is possible for the debtor to offer a defence in court, saying that they were not aware of the terms at the time of supply.
Some companies offer discounts for prompt payment, but this strategy should be used with care. Make sure you can afford to offer a discount! Also, you may find that after a while the debtor will deduct the discount even when they do not pay on time, causing a potentially awkward situation.
There is a statutory right to claim interest on overdue debts – see The Late Payment of Commercial Debts (Interest) Act 1998 (amended 2002), However, you have to weigh up the advantages of doing this against the effect that it may have on trading relationships.
3. Be accurate!
Make sure that you check your invoices over carefully – for example, is the amount correct, is it addressed to the right person with the correct address, and have you included any information on there that the client has specifically requested, such as an order number?
Find out what the client’s payment cycle is (some companies only do a ‘cheque run’ once a month, for example) and make sure you get your invoices in at the right time to maximise the chances of prompt payment.
