How Do You Protect Your Business From Being A Casualty?
Anyone following the business news will have seen a string of high-profile companies going into administration or liquidation in recent months often leaving their suppliers out of pocket. So how do you protect your business from being a casualty? Here is some practical advice from George Goss of Goss Environmental Coatings.
Get your house in order
State clear payment terms in your Ts&Cs and all quotations covering when payment is due, late payment and so on.
Run a credit check with one of the agencies. It doesn’t cost much but can save you a fortune in the long run. I credit check all new contractors / companies and often request payment pre-start if they don’t meet my criteria, and most say yes!
Set a credit limit and stick to it. Credit checks often come with a suggested credit limit and that is a good place to start but you can vary this according to your risk appetite and what your company can afford to lose.
Identify a “go to” person to speak to about billing and payments.
Send your invoices out on time and state your late payment terms.
Send a friendly reminder in advance of the due date. Polite and persistent money-chasing can be your most effective tool. Get yourself to the top of the pile for being paid in full / on time / every time.
Follow up immediately payment is not received.
Always chase the little bits! In the world of construction there are often retentions due 12 / 24 months after the project is complete. Do not forget to chase these amounts – they can add up and are YOUR money that you earnt at the time. So, gather them in full!!
Act quickly if invoices are disputed or not paid on time.
Disputed invoices are generally a sign that something’s not right. Either there’s a problem with your work or there’s a problem at your customer’s end.
Get onto it straight away – it’s not rude to chase an outstanding payment!
Speak to your contact in the first instance to find out what’s going on and agree a concrete, timebound action plan. Be skeptical about what they tell you. If that doesn’t result in payment, make a call to their accounts department.
Make notes of what they tell you, confirm what you agree in writing and set a follow up date.
Don’t let things escalate
All the while you carry on working without payment your exposure is increasing. If the friendly approach doesn’t work, you might need to get more formal. Don’t be afraid to stop work or withhold deliveries – sometimes that can be your greatest leverage.
Write a letter or email to your customer stating that, if your invoice isn’t paid within, say seven days, you’ll charge them statutory interest plus the Bank of England base rate for business-to-business transactions. You may also tell them that if, within seven days from the date of your letter, you do not receive payment, you will suspend work and/or cease all deliveries until such time as payment is received in full. You should though, of course, refer to the terms of your order / contract.
Talk to the right people
When chasing payment, try and get to the right people / department making dealing with payments and making remittances and ‘make a friend’ who can help you untie the knots of getting paid each month (especially with large companies / accounts) – nurture that contact and connect when help is required!
Be prepared to seek professional help
If you are not confident about doing this yourself, or not getting anywhere, speak to a debt collection agency or firm of solicitors. However, in our experience, this should be the final step – usually the only winner is the law firm!
Cashflow is the life blood of your company so it’s vital not to let it be cut off. You are doing business to provide an excellent product / service and be paid for it, fully and fairly – otherwise what is your hard work for? There is no guarantee that you will never suffer a bad debt (most companies will at some stage), but if you get the basics right, you stand a better chance of getting the money in or limiting any losses.