HI I appreciate you are having a problem with a difficult client and you may cripple your business worrying about this customer. Try and keep the business going and keep a balanced perspective on the debt. It Happens - unfortunately. If it is any help I wrote these notes a while back which might help.
1 Ensure you have some form of trading terms and conditions. Try and avoid pages full of minutiae in miniscule print. Consider a form of “heads of agreement” or “principles of trading” that make it clear how you want to trade with customers and suppliers, highlighting what you consider critical, important and desirable. It should also include what action you may take if the “spirit and intent” is not honoured. E.g:- Goods remain in your ownership until paid for in full; Future supplies suspended immediately; British law will apply to any disputes; Dealing with Force Majeure:
2 Having straightforward business systems that are managed firmly will save time and resources by avoiding crises, in comparison with a laissez-faire approach, which will always be exploited by customers and particularly their accounts department whose agenda is not to pay.
3 There is no reason why you should not apply particular payment terms to different trading relationships. They can range from payment in advance, phased payments, cash with order, cash on delivery, or 7, 14, 30 or whatever terms you are willing to accept. Do not be deterred by the size of the company, everything is negotiable and there are many examples of accepting “non-standard” payment terms. It's just a question of your ability to negotiate
4 It’s often useful to ask the customer what payment terms they give their customers. The nature of their response and the actual terms can be very revealing. This will give you a steer on how you should proceed. If you agree to their terms, it gives you the right to be very heavy handed if they do not comply to the day.
5 Where extended payment terms may become a key element of the deal, always try and negotiate a back-to-back agreement with your key suppliers to share the exposure. Suppliers can be very sympathetic if the situation is explained and it is seen to be a one-off or relatively short-term. Where you cannot get a back-to-back agreement, undertake a rigorous risk assessment before accepting the full exposure. Ensure, you have factored into your pricing the cost and risk of funding any extended payment terms.
6 All payment terms are negotiable, whilst 30 days has become the norm, there is absolutely no reason why you need to follow tradition. There are also numerous interpretations of what 30 day payment terms can mean. It is therefore essential you state clearly what you're payment terms are, do not allow your customers or suppliers to apply their own interpretation.
7 Set credit limits for both customers and suppliers. This provides a vital checkpoint that ensures there is an acceptable business reason for them to have been reached and that they should or should not be exceeded in a particular situation. Frequent pressure on credit limits requires scrutiny to validate whether there is a potential crisis or that the trading relationship requires them being changed. Equally, credit limits should be reviewed periodically in the light of trading activity and adjusted up or down.
8 When closing the deal, sale or purchase, make the payment terms an overt element of the deal. Get the commitment from the individual that they will honour the payment terms you require. This also provides you with a secondary, and personal, channel into the customer or supplier should you need to apply pressure.
9 Overtly state the agreed payment terms on any quotation and/or order acknowledgement and include a copy of your terms and conditions of trading. In the absence of any contractual conditions to the contrary, it is customary to presume that the last exchange of terms and conditions are the ones that apply.
10 Ensure your invoices are correct in every respect: correct order number; name of person placing order; clear product description; correct coding; quantities actually shipped; correct price; extensions correct; right invoice address; payment terms reminder. Provide no excuse for the invoice to be disputed and thus payment delayed.
11 For critical accounts, e.g. significant sums of money or reluctant payers, consider calling the customer a week before payment is due to ensure there are no problems and that payment can be expected on time. This can pre-empt non-payment excuses but also enables you to resolve any queries and minimise the risk of late payment.
12 If not paid on time -- suspend supplies immediately explaining why. The success of your business cannot not be prejudiced by a customer. Any trading relationship is intended to be mutually beneficial, not customer biased.
13 Bad payers are always poor customers. Do not persevere too long – drop them in the nicest possible way with a pleasant letter to the M.D. explaining why. This can sometimes restore a good trading relationship. But be cautious.
14 If you offer any prompt payment discount, ALWAYS match it with a late payment penalty! There is a legal right to claim 8% above bank rate on late payments. Imposing the penalty should not prejudice the trading relationship if it was clearly stated in communications, e.g. T’s & C’s, quotations, order acknowledgement, and invoices, providing always that your trading terms had been accepted for the transaction.
15 If, despite all your best endeavours you get a delinquent debtor, you should have in place a system that can be followed to deal with the situation. Ideally, it should provide guidance as to what process should be followed in relation to the size or complexity of the debt. Reminder letters, solicitors letters, small claims court or winding up order.
16. Using the sledgehammer to get paid – Check which is best for you!:- Money claim on line process :-
Guidance notesSmall claims court process start here:-
Guidance notesThird party debt order look here:-
Guidance notesWinding up order look here:-
Guidance notes
17 Taking Revenge:- Using the small claims court seek a “Third party Debt Order” enforcement. This freezes the defendant’s bank account until you are paid in full!or Issue a “statutory demand” which if not satisfied within 21 days, allows you to seek a winding up order from the court. This can be pursued for any sum in excess of £750. Whilst this may not get your payment it may give you the satisfaction of closing down the delinquent company. Both these options can also be used effectively in warning letters to delinquent payers
