Dealing with increasingly poor payers

[EU_Ltd]

While I have run my small business for some time, I'm starting to see problems that I have never had before. My work is almost exclusively producing Expert Reports for use in Court (if required) for solicitors. In the last 18 months I have started to see significant drag on payments - such that for the first time I have had to take out a business overdraft (I run the company to pay dividends, not to keep sucking director's loans out of me) and this year I have had about half my annual income outstanding. I'm still small enough to bob under the VAT threshold.

I have robust terms and conditions that I review at least annually. I tell them my terms are 30 days. They all accept these and send back an acknowledgement that they have done so. However, (with a few honourable exceptions) they then ignore that. I have a debt recovery policy which should kick in. BUT. I'm dealing with a relatively small number of institutions, and I want repeat business. I'm really reluctant to start charging overdue fees, and then proceeding to debt recovery, although I have done that a couple of times with variable success. I don't want word to spread in their community that I'm difficult and aggressive about being paid - in my eyes I'm not; I gave them Ts&Cs which include payment terms and they signed up to them. But cashflow is a real issue.

I found this forum after googling about credit, and realise that there are a lot of people here who have dealt with these problems and can help. I read the articles about steps people might take, most of which I already do, and am beginning to think I should start demanding deposits. Things came to a head this week with a national firm who, if I hadn't been paid by Friday would have had the 14 day letter and my 8% fee and compensation letter. The invoice was actually due in early August. However, I then did a bit of due diligence on the firm, and I discovered that they were running a massive annual loss from the documents at Companies House. I won't name them, obviously but it doesn't look sustainable to me.

However, a few general questions come out of this to me.

Is everyone seeing late payments worsen?
Should I be credit checking everyone and feeding that into my decision about working with them?
Can anyone recommend a decent inexpensive credit checker?
Should I now be demanding a deposit, and how is this likely to be received?

Any other advice would be welcomed.

 

[fisicx]

Get payment or at least a deposit upfront. Or invoice financing. Of trade credit insurance.

These people aren’t paying because you make it too easy for them not to pay.

 

[EU_Ltd]

Many thanks; there is something in what you say, but as I said originally the pool is relatively small.

I don't think anyone would be prepared to look at invoice financing on the sorts of sums I invoice - rarely over £3k. I haven't heard of trade credit insurance, so can review that, but I think the best option is to insist on a deposit.

 

[Mark T Jones]

Excuse me if you've covered this (I skim-read)

Yes, collections is increasingly becoming a problem, but your situation is probably outside the norm, because it would appear that you are dependent on court outcomes?

Unfortunately the legal process has become agonisingly slow due to cut-backs and a surge of credit-related cases.

A few questions:

Who is your customer?
What are your contract terms?
Is there any leverage available to you?

 

[Newchodge]

If a solicitor fails to pay your invoice, when it is properly presented, within the due date, you have a problem. If you threaten to report them to the Solicitor's Regulation body, THEY have a problem.

If the solicitor is acting for a private client they would have received payments up front, including payment of your fees. Unless they are working on no win, no fee. In which case the solicitor has to bear the cost until they recover their costs when they win the case. I suspect your clients may fall into the latter group. You could try asking if they are working no win no fee, and refuse to undertake any work unless your fee is paid up front.

 

[EU_Ltd]

Thank you. No-win no fee is overwhelmingly now reinsured, and the reinsurers act as factoring agents for the solicitors. Fortunately, most civil cases now are settled before getting to Court. No Expert can wait for Court outcomes which may be two years or more hence. A small business (or indeed individual) simply cannot carry indebtedness for so long.

However, all the solicitor has to do is to pass my invoice on to the reinsurer and it gets paid. As I pointed out before, this does often occur smoothly - it's those times when the solicitor appears to be being dilatory for no good reason.

 

[fisicx]

- it's those times when the solicitor appears to be being dilatory for no good reason.

In which case take action. Raise a complaint and a small claim.

 

[MikeJ]

Just for clarity, I'm assuming you're not worried about bad debts - it's just people are slow to pay?

 

[Newchodge]

Just for clarity, I'm assuming you're not worried about bad debts - it's just people are slow to pay?

Isn't slow payment often a precursor of bad debt?

 

[MikeJ]

That's not my experience, but I know all businesses are different. Do solicitors ever go out of business owing people money?

 

[Newchodge]

That's not my experience, but I know all businesses are different. Do solicitors ever go out of business owing people money?

Oh yes! Solicitors can make mistakes with who owns 'company' money as much as anyone! You should read the Law Gazette

 

[EU_Ltd]

Just for clarity, I'm assuming you're not worried about bad debts - it's just people are slow to pay?

Yes indeed, we have good processes in place for non-payment. Obviously, most slide from one to the other.