Improve cash flow
How can I prevent non-payment and improve my cash flow?
Terms and Conditions
Terms and conditions are designed to protect your rights, limit your liabilities and provide you with some security. They need to be clearly stated on all relevant documentation to both existing and new customers.
Always have a standard set of Terms and Conditions. Put these on the back of your order forms, pro-forma invoices, sales material on your website and attach them to sales emails.
Whether you are a sole trader, a partnership or a company look at the Terms and Conditions of some of your competitors or similar industries or have a solicitor draw up a set just for you.
You don't have to implement every single clause in your client agreement but they are there for your protection especially if you leverage them in collecting payment.
Using the Late Payment of Commercial Debts Act, "We understand and will exercise our statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to agreed credit terms."
Credit check potential customers
While it is tempting not to check a new customer's credit history, to save time, it is vital to carry out these necessary checks to ensure your customers are able to pay you for your goods or services before you commence any deliveries or work on their behalf – especially if there invoices represent a large percentage of your income or your bank will not cover cash flow.
Aim to run credit checks on your existing clients on a bi-annual basis to ensure their financial situation has not changed since you started dealing with them.
Document payment terms
Payment terms need to be clear and when they are not your standard they should be set at the beginning of a relationship with a new customer and followed up with written confirmation which must be signed and returned by your customer before you commence working on their behalf.
Consider encouraging fast payment if you have the margin – encourage your customers to pay on time, offering early payment discounts if they pay within a certain credit period – this shows you care about their business, run a tight ship and are prepared to reward those who deal fairly with you.
Draw up your standard process for tracking of non-payments
Invoice on time send invoices immediately. If you don't you can't expect to be paid on time. Clearly address the invoice to ensure it reaches the correct person along with information as to when the payment is due.
Clear plain English communication
Keeping on top of regular communication with your customers and suppliers is crucial. Ensure you follow up invoices with a call to confirm receipt and advise customers of any outstanding payments.
Stick to your routine
Having a good filing system will ensure you are aware of payments due and are able to keep track of them more efficiently. Delegate, if you are able, the task of conducting weekly checks on those invoices that are outstanding to a responsible employee and get them to give regular updates so you can spot trends and head off any potential problems.
- start by securing your customer's acceptance of your terms and conditions of business
- month end - Issue written statement of account
- 30 days from invoice - payment now due reminder
- 45 days from invoice - telephone to customer accounts payable department – identify and solve any reason for late payment. Issue Final Demand notice
- 60 days from invoice - telephone customer - identify any outstanding reason for payment failure. If appropriate send letter stating that account will go on stop at 70 days
- 70 days from invoice – send letter confirming account on stop
- 80 days from invoice – Pre-action letter outlining intention to proceed with county court action if payment or response is not received within 14 days
- 95 days from invoice – issue letter confirming court action is being started
- 99 days from invoice - issue N1 claim form to commence county court action