For any business, good cash flow is essential. Here are five steps credit controllers and business owners can take to help avoid late payment problems – and to deal with them if they arise.
Prevention is better than cure, and there are some things you can do at the start that can help protect you against late payment problems.
Firstly, be certain you are preparing to contract with the correct entity – some businesses use different trading names which can hold up efforts to secure payments.
Check the contracting party out before drawing up terms – if you are dealing an individual, ensure there is no bankruptcy order against them, and if it’s a company then check it is still trading.
Set out clearly in your terms when you expect to be paid and how you will take steps to recover debt and professional charges associated with chasing the debt.
For more details see our article Recovering debt: How good contract terms can make all the difference
The Late Payment Act is a powerful tool that is under-used by businesses. It allows businesses to claim interest, compensation and debt recovery costs if another business is late paying for goods or a service.
The Act will imply terms where they haven’t been agreed at the time of the contract, specifically, payment time frame, interest on late payment, a compensation fee and recovery of some charges. It is designed to be the standard for payment terms, and to protect businesses even when specific payment dates have not been set.
Late Payment Act terms will not be implied into a contract if your contract terms have already stipulated a contrary interest rate, or your contract is with a consumer rather than a business.
For more information about the Late Payment Act and how to use it, see our article The power of the Late Payment Act
No two businesses, or business deals, are the same – so it’s important that every contract is understood with the unique circumstances in mind. If needed, take specialist advice from a contracts expert to ensure every contract is fit for purpose.
In particular, check any agreements to ensure that you are not agreeing to longer payment dates or terms than you want to, or otherwise ‘contracting out’ of the Late Payments Act.
Have reminders and measures to chase invoices diaried into your systems to ensure whoever you have contracted with clearly understands payment schedules and the consequences of late payments.
Send a reminder as the due date approaches, and at this stage you could set out what charges will be applied if the payment is late under your contract terms or the terms of the Late Payment Act – whichever applies.
Then your processes should include one or two ‘chasers’ before you send a final demand. Make sure that throughout the process you deal with any invoice queries that come in and, if necessary, any complaints. Document these carefully in case they are needed in any future action.
If all else fails, then you may need to take action to recover the debt, and a specialist lawyer can support you with this.
They start by reviewing the terms and conditions of your contract and assessing your likelihood of recovering outstanding costs or goods. You can then make an informed decision about how to proceed.
The first step is usually a Letter Before Action (LBA) which allows individuals a minimum of 30 days to respond, while companies have at least seven days to respond. Often, the LBA prompts repayment negotiations and no further legal action is needed.
If the debtor doesn’t respond to an LBA, you can initiate Court proceedings by issuing and serving a claim on the debtor. If a debtor fails to respond, the debtor will have a County Court Judgment (CCJ) registered against it, which can be enforced in several ways. Your lawyer can help guide you to the most appropriate method.
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