Some tips on getting paid on time.

[redyork]

Afternoon all,

I’ve been helping out a number of UKBF users these past 12 months and I’m always happy to share some advice so thought I would post some basic tips on improving your credit collections procedures.

Here’s a few tips that will help business of all sizes improve their cash flow and to reduce their debtor days:

1. Do not ignore overdue invoices hoping that payment will magically appear tomorrow. Make contact with client as soon as the invoice becomes overdue - cash flow is what keeps you in business, deal with late payers professionally and quickly and do not let debts go unaddressed for weeks and weeks, you'll be asking for trouble.

2. Ensure that you have formal Terms of Business or Booking Form with all customers/clients, without exception! Make sure that there is provision for either contractual or statutory late payment interest (commercial clients) should invoices not be paid on time. Late payment interest can act as a strong deterrent against late payment and is also there to compensate you should invoices be paid late. It is not compulsory to apply late payment interest so you remain in control.

3. Communicate your payment terms clearly. Make sure that your payment terms appear clearly not only on invoices but on all order/booking forms that you use as well as your T&Cs and website.

4. Stick to deadlines - Send a well drafted reminder notice on the very day that your credit terms have expired. Be on the ball and ensure that your clients know you are on the ball. A reminder notice should make a demand for payment in full and again, communicate a clear deadline, say 7 days, and confirm how they should make payment. Also request that the client contact you immediately should they be unable to send remittance straight away.

5. Know your customer - Make sure you know who you are dealing with. Is it a sole trader? A limited company? A Partnership? What’s the registered address etc etc. Be thorough, always. If it's a new client or a large value order then, where possible, carry out a credit referencing check on the client to ensure that they are indeed credit worthy. Also consider requesting a deposit if appropriate.

6. Do not be afraid to ask for payment. The number of clients I've worked with that appear to be initially frightened to push their debtors for payment is high. Small businesses sometimes worry that by demanding payment as soon as the credit terms have expired they may lose future custom. This is rarely the case, it's just business. Do not just rely on sending letters requesting payment, pick up the phone and speak with your client. A verbal request asking for payment cannot be ignored and put in the bin; they will be obliged to address the matter with you there and then.

7. Have a paper trail - Where possible try and chase early debt in writing (via email). Having a written record, proof of a commitment to pay from you debtors and an acceptance of liability is invaluable should the matter ever become somewhat litigious.

8. Incentivise your customers to pay quickly - If it's a viable option then offer a small discount on future bookings for prompt payment, this encourages clients to settle invoices quickly and also opens the door for repeat business!


9. Use a professional – If your attempts to secure payment from your debtor are not working and you genuinely feel that you have exhausted every option to deal with the matter yourself then refer the matter to a debt collection agency/ solicitor as soon as you sincerely believe that your efforts have not worked. The older the debt the more difficult it is to recover. These services generally have a good success rate and will prove much quicker than relying on the Courts. (In my opinion). Make sure that you inform the debtor in writing of your intention to pass the debt to an external agency/firm. This can be used to good effect in your final demand for payment.

10. Ask about their collection techniques - Make sure that if you do use an external company to help tackle debts then make sure they are both professional and ethical in their approach. Using unfair/threatening collection procedures could potentially land you in hot water and you do not want to give your debtor any excuse to continue to withhold payment.

Please feel free to message me if you need any specific advice and I'll help out where I can. Alternatively, if you're looking for support in collecting a business debt then drop me line at Redbridge and York. My firm specialise in providing a thorough and professional debt collection support to businesses of all sizes throughout the UK. We chase debts anywhere from just £100.00 to over £100,000 in value.

Good luck, it's not rocket science, be thorough, be on the ball and remain 100% professional at all times.

All the best,

Jamie

 

[MikeH]

Interesting. I am about to file a claim this friday (unless by some amazing chance payment is received). Perhaps you could enlighten me as to how your service could help me. For basic details please read the link in my sig - ripped off.

It is not a large amount. A pitiful £625, but I intend to pursue this debt as a matter of principle.

Cheers,
Mike.

 

[snipe12]

Nice thread. Just reminded me of a few things.

Since you gave me all that advice when you were collecting the debt on my behalf, it has really helped me stay on top of customers. So no more business for you, well that is until someone else dares not to pay.

 

[redyork]

Thanks Snipe. I think ?!?!! I think you may have just gone and tempted fate !

To be honest I genuinely believe that vast majority of debtor issues can be avoided. There are of course times where all business will have real difficulties with some clients and that's when a firm like mine should definately come in. Your own credit collections is all about perception. The debtor needs to know that you will do what you state you will and when you say you will and if that is clear from day one then you will have few difficulties with debtors.

Good luck with that 'thing' and I hope business is well.

Jamie

 

[Peter Bowen]

Nice list, thanks.

I think one of the key reasons that debtors take a chance with small businesses is that for the most part our internal credit control systems are non-existent.

We've seen with people who use our invoice reminder system that simply having a formal system for following up on unpaid invoices seems to have a psychological effect on late payers. A followed up invoice feels like one of those that you don't ignore.

Cheers

Pete

 

[maxine]

Great post Jamie and so glad you added No 5 which I feel is always the one that people get caught out by even if they have everything else in place. Otherwise collections is a bit like trying to shut the stable door after the horse has bolted!

If I was to add anything else to your list it would be credit limits so that businesses operate credit lines to the amount that they feel comfortable with in terms of how much they can afford to suffer in terms of cashflow and against profit. That way they can ask for payments on account if the amount owed at any one time becomes uncomfortable etc

 

[redyork]

Good Point about credit limits. Credit referencing systems generally provide guidance on appropriate credit limits for individual businesses but ultimately it should be down to what you're comfortable with etc. Many businesses worry about imposing credit limits and asking for deposits in case they risk offending and then losing a potential new customer. I guess it's just a judgement call but following the steps above and knowing everything possible about the customer should minimise risk. Thanks for the post.

 

[paula555]

Thanks for the tips, very helpful.

 

[domokun]

2. Ensure that you have formal Terms of Business or Booking Form with all customers/clients, without exception! Make sure that there is provision for either contractual or statutory late payment interest (commercial clients) should invoices not be paid on time. Late payment interest can act as a strong deterrent against late payment and is also there to compensate you should invoices be paid late. It is not compulsory to apply late payment interest so you remain in control.

3. Communicate your payment terms clearly. Make sure that your payment terms appear clearly not only on invoices but on all order/booking forms that you use as well as your T&Cs and website.

I wonder, does anyone have good examples of these T&Cs both for the website and for the invoice template?

Im a webdesigner and frequently have invoices paid late. As a one man band I rarely impose any sort of charge for this but come the new year I've decided this needs to stop.

I'd like to know what others have successfully used to help get invoices paid on time.

 

[Peter Bowen]

I've got a free credit application template on our website. You'll probably want to customize it to suit your business exactly as it's fairly generic.

There are also a bunch of debt collecting tips on the site.

Cheers

Pete

 

[redyork]

Thanks. I'll PM you shortly with some info on the T&Cs.

 

[domokun]

For the invoice itself (Im assuming this is the most important document to get the wording right), would the following wording be OK?

If you have any questions or concerns about this invoice please do not hesitate to get in touch. If no query is raised, full payment will be expected within 30 days from the date of this invoice. Failure to pay within 45 days will incur a charge of £50 per calendar month.
​

Or perhaps:

If you have any questions or concerns about this invoice please do not hesitate to get in touch. Full payment is expected within 30 days. Failure to pay within this time will incur a one-off charge of £50 and monthly interest charges of 10% on any outstanding balance.


​

:|

 

[paula555]

Hi Jamie

Could you PM any information you have on late payment legislation?

Very appreciated....

 

[David Griffiths]

For the invoice itself (Im assuming this is the most important document to get the wording right),

It's not, actually. By the time that the invoice is issued, the transaction has normally taken place. If you want to impose terms and conditions in relation to the sale, you must do this before the event. Not after the event, on the invoice.

Detailed Ts & Cs on an invoice are often a waste of time.

 

[maxine]

Agree with David - any wording on T&C's on invoices should serve as a reminder of the terms already communicated not the first communication of them.

Wording on the invoice might be better along the lines of...

Payment is due within 30 days from the date of this invoice. Any queries in respect of this invoice should be notified to us immediately (perhaps put contact email or phone number). We respectfully remind you that late payments will incur fees and interest in line with our terms and conditions.

 

[virtualmediauk]

Alot of the time a debt gets worse when no one is actively chasing it, lets face it no one really likes having to chase for money which is one reason so many people fall behind.

Having an automated system in place to chase the debt through a series of email letter reminders is a bit like have a central heating system in place. You don't realise just how effective it is until it breaks down.

An automated system doesn't have to cost the earth and if fact could be working for you from as little as £195.00 + vat a year. Lots cheaper than hiring a credit controller I think you'll agree.

Don't let your debts get out of hand.

Prompt payment is a key indicator of customer value. This customer is helping you avoid additional costs and maintain margins and cash flow by paying on time.

Hope this helps.

 

[redyork]

Again, I agree with David and Maxine. See point 2 of my tips. Virtualmedia makes a great point too, it's about keeping on top of things and having a thought out process/procedure in place will definately help. J

 

[AccountsReceivable]

nice tips,

they are and will be handy

cheers

 

[Ian J]

For the invoice itself (Im assuming this is the most important document to get the wording right),

No it isn't as terms and conditions on an invoice aren't necessarily binding as an invoice is rendered after the goods have been delivered or the service rendered. The all important terms and conditions should be contained on your acknowledgement of order as that is the document that you are telling your customer on what terms you will supply him.

Obviously there is no harm in reprinting the T&C's on an invoice

If you don't acknowledge an order you may find that any T&C's in the customer's order placed on you are binding and hidden away in the small print it could say that payment will be made in 90 days

 

[Peter Bowen]

Can I suggest that you make it absolutely clear when you expect to get paid eg. Payable on or before 23 Novembe 2008 rather than 30 days after invoice.

It might be pedantic but it removes one more obstacle to getting paid on time.

I agree on the effect of actively chasing outstanding debts. We run an online automatic invoice reminder service. Because it's automated it only costs pennies per invoice but the results are great. Our users have reduced the number of debts handed over for collection or written off to 0,48%. 44% are now paid on time or within 1 week of the due date. (Obviously we'd like this to be 100% but even this lower number represents a significant improvement in cash flow for most of the small business owners).

Cheers

Pete

 

[profitxchange]

some very good stuff here.

 

[domokun]

Some great advice, thanks.
Would anyone have a link to some T&C's that I can modify for my website.

Im thinking of something along the lines of:

• All invoices will be paid within 30 days of receipt
• Certain projects (such as web design/development & Pay Per Click Campaigns) may require an initial deposit of 40% of total costs.
  • Work will not begin until the deposit has been paid.
  • The deposit is non-refundable but will be taken off the total bill at the end of the project.
• Failure to pay an invoice within 30 days will incur a monthly charge of £50 or 10% of any outstanding balance (whichever is greatest)
• Failure to pay an invoice within 45 days will lead to suspension of websites, web hosting, Pay Per Click Campaigns and Search Engine Optimisation services
• Websites, web hosting, Pay Per Click and Search Optimisation services will be suspended until full payment of invoice has been made.
• After 60 days, if no payment has been made a claim will be filed with the Small Claims Court.

What do you think? A Good start? To heavy handed at the end?!

 

[Peter Bowen]

Some great advice, thanks.
Would anyone have a link to some T&C's that I can modify for my website.

Im thinking of something along the lines of:

• All invoices will be paid within 30 days of receipt
• Certain projects (such as web design/development & Pay Per Click Campaigns) may require an initial deposit of 40% of total costs.
  • Work will not begin until the deposit has been paid.
  • The deposit is non-refundable but will be taken off the total bill at the end of the project.
• Failure to pay an invoice within 30 days will incur a monthly charge of £50 or 10% of any outstanding balance (whichever is greatest)
• Failure to pay an invoice within 45 days will lead to suspension of websites, web hosting, Pay Per Click Campaigns and Search Engine Optimisation services
• Websites, web hosting, Pay Per Click and Search Optimisation services will be suspended until full payment of invoice has been made.
• After 60 days, if no payment has been made a claim will be filed with the Small Claims Court.

What do you think? A Good start? To heavy handed at the end?!

It does sound a bit heavy handed. I imagine it being said by a hairy-armpitted Russian woman wrestler (no offense to any Russian women reading this).

Invoices being paid within 30 days of receipt is a bit vague - if you must offer credit I'd suggest that you calculate the due date from the date of issue of the invoice rather than some date on which your customer might finally receive it.

Check it out in your jurisdiction but I think there might be a maximum interest rate that you can charge on a commercial debt.

I don't think you need to specify what action you will take - you have the right to attemtp to recover outstanding money using the courts anyway.

I'm not sure charging interest works for us smaller businesses - I've written an article about it here if you're interested.

Cheers

Pete

 

[domokun]

Well, as no-one seems to know of any decent t&c's online I decided to get off my virtual arse and do some digging myself!

Here's what I've come up with:

In these conditions:

The Contractor is [You] trading as [Yours].

The Client is the person, firm or company whom requests the Services from the Contractor.

The Client shall pay all sums due to the Contractor within 30 days of Receipt of a valid invoice, submitted monthly in arrears.

The Contractor shall ensure that each invoice contains all appropriate references and a detailed breakdown of the Services supplied and that it is supported by any other documentation reasonably required by the Client to substantiate the invoice.

Where the Contractor enters into a sub-contract with a supplier or contractor for the purpose of performing its obligations under the Contract, it shall ensure that a provision is included in such a sub-contract which requires payment to be made of all sums due by the Contractor to the sub-contractor within a specified period not exceeding 30 days from the receipt of a valid invoice.

The Contractor shall not suspend the supply of the Services unless the Contractor is entitled to terminate the Contract for failure to pay undisputed sums of money. Interest shall be payable by the Client on the late payment of any undisputed sums of money properly invoiced in accordance with the Late Payment of Commercial Debts (Interest) Act 1998.

All payments due shall be made within 30 days, in cleared funds, to such bank or building society account as the recipient Party may from time to time direct.

If the Client fails to pay the Contractor undisputed sums of money when due, the Contractor shall notify the Client in writing of such failure to pay and instruct the Client to make full payment within 7 days.

If no payment has been received in this 7 day period the invoice will be re-issued including a £50 late payment fee or a 10% interest charge to the net amount (whichever is greater).

If the Client fails to pay such undisputed sums within 60 days of the date of the original invoice, the Contractor may terminate or suspend services provided.

The Client shall not be liable to pay any sum which:

(a) was claimable under insurance held by the Contractor, and the Contractor has failed to make a claim on its insurance, or has failed to make a claim in accordance with the procedural requirements of the insurance policy;

(b) is a claim by the Contractor for loss of profit, due to early termination of the Contract.

The Contractor shall take reasonable care to ensure that in the performance of its obligations under the Contract it does not disrupt the operations of the Client, its employees or any other contractor employed by the Client.

If the Contractor is temporarily unable to fulfil the requirements of the Contract owing to disruption of normal business of the Client, the Contractor may request a reasonable allowance of time and in addition, the Client will reimburse any additional expense reasonably incurred by the Contractor as a direct result of such disruption.

Neither Party shall be liable to the other Party for any delay in performing, or failure to perform, its obligations under the Contract (other than a payment of money) to the extent that such delay or failure is a result of Force Majeure. Notwithstanding the foregoing, each Party shall use all reasonable endeavours to continue to perform its obligations under the Contract for the duration of such Force Majeure. However, if such Force Majeure prevents either Party from performing its material obligations under the Contract for a period in excess of 6 Months, either Party may terminate the Contract with immediate effect by notice in writing.

Any failure or delay by the Contractor in performing its obligations under the Contract which results from any failure or delay by an agent, sub-contractor or supplier shall be regarded as due to Force Majeure only if that agent, sub-contractor or supplier is itself impeded by Force Majeure from complying with an obligation to the Contractor.

If either Party becomes aware of Force Majeure which gives rise to, or is likely to give rise to, any failure or delay on its part it shall immediately notify the other by the most expeditious method then available and shall inform the other of the period for which it is estimated that such failure or delay shall continue.

Sources are:

http://www.businesslink.gov.uk/bdot...5103051&r.i=1073791759&r.l2=1073858944&r.s=sc
http://www.is4profit.com/business-advice/finance-money/late-payment-invoices-2002_3.html
http://www.ogc.gov.uk/Model_terms_and_conditions_for_goods_and_services.asp

That's what Im going with for now. Im not actually going to enforce these until Janauary so if anyone has any additions, let me know!

 

[LocalBusinessChampion]

There's a good article on the FT website by Mike Southon here which recommends outsourcing your credit control.

 

[paula555]

Thank you for the info! You should post a thread on here, many would find it helpful : )

 

[Peter Bowen]

There's a good article on the FT website by Mike Southon here which recommends outsourcing your credit control.

I'm not sure outsourcing credit control is good for small business. I agree that you should get someone who knows what they're doing to handle it when it comes to legal proceedings but before that it should be done in-house.

I found 5 good reasons not to outsource your debt collecting if you're a small business. They're here if you're interested:
http://www.getting-paid.com/resources/outsourcing-debt-collection-can-damage-your-business.html

Cheers

Pete

 

[redyork]

Hi Peter, Despite a few sweeping statements and generalisations I kind of see what you're attempting to get at. For the record (and I can solely cite the internal process and procedures that my firm adopt). All staff are specialist debt recovery professional with many years in debt recovery and litigation support behind them. We do not have a business model built around generic template letters and poorly trained call centre operatives. There's a huge difference between using an experienced debt recovery professional to resolve a difficult debtor account and simply outsourcing your basic credit control function.

The debt recovery industry is evolving quickly and the old fashioned size 10 approach is thankfully dying out. Most successful debt collection business are extremely well ran and have a huge focus on CRM for both client and debtor. The top 100 UK law firms almost all have debt recovery arms now. I would however agree that all businesses should retain as much control over their credit collections process as possible.

 

[Peter Bowen]

Hi Jamie,

I'm not taking a dig at your firm or at the industry in general. I think there is great value in outsourcing stuff that's not core. However, getting paid is a core function of any business and should be kept close to the owner's heart.

I've been on the receiving end of outsourced credit control (ie as a buyer of goods provided by a company that outsourced it's credit control to a third party) with 3 different suppliers. In each case it was a poor experience for me as a customer and eventually featured as one of the reasons we dumped the suppliers.

Cheers

Pete

 

[redyork]

Hi Peter,

No offence taken. I do see your point. If you read my article you'll see that I fully support business owners retaining as much control over their collections procedures as possible, in fact, the use of a Debt Collection Agency or solicitor should really be the last resort. Outsourcing any client facing function has it's pro's and con's but for the record I personally would recommend that the vast majority of businesses would be better off keeping their general credit collections function in house where possible and only to use outside support once their internal processes have been exhausted.

PS - Will drop you a PM, I have a query.

J

 

[Peter Bowen]

Hi Jamie,

PM or [email protected] would be fine

Cheers

Pete

 

[Ian J]

There's a good article on the FT website by Mike Southon here which recommends outsourcing your credit control.

I can't see how outsourcing credit control would be more effective than doing it inhouse as only you know what orders you have in hand for the customer and how valuable the goods are too him and only you know how hard you wish to push the customer if he's slow.

Outsourcing might be OK for a large company who just operate to a fixed routine but the only advantage that I can soo to an SME is that it releases the credit controller (often the business owner) to do something more productive.

 

[Ian J]

I found 5 good reasons to post another link to my website. They're here if you're interested:

Sorry Peter, I couldn't resist it

 

[redyork]

Excellent ! lol

 

[webman11]

Useful advice. thank you.

 

[redyork]

No worries. I have a post in the Legal forum regarding free debt collection. Worth a look. J

 

[redyork]

I have another question on factoring..will PM you.