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Improved Payment

How to improve your chances of getting paid on time by your clients?

 

This crisis has painfully magnified already existing supply chain bullying that goes on, particularly small suppliers vs big company clients. Now, that businesses are starting to open again, your clients, who are still owing money may start running out of excuses.

There are several things businesses can do to ensure they get paid on time. Below are some tips that should help you make progress with cash collection efforts.

 

 

  1. Make it easy to pay you but also be clear what happens if they don’t

Ensure your invoices have clearly stated payment terms and bank account details. You can even offer direct debit if it is a repeat service.

Also, include the following wording on your invoices: “We will exercise our statutory right to claim interest (at 8% over the Bank of England base rate) and compensation for debt recovery costs under the Late Payment Legislation, if the invoice is not paid according to our agreed credit terms.” If you decide to charge interest after the original invoice is issued, you can issue a new invoice just for the additional charges and interest.

If you sell goods or products you should include “retention of title” clause in your contract. It is a clause that allows the supplier to retain ownership over the goods supplied until such time as certain conditions (eg payment of invoice) are met, thus providing you with a form of security against the buyer’s default or insolvency. A retention of title clause is sometimes known as a Romalpa clause.

 

  1. You can legally charge interest, regardless if you have a contract or not

According to The Late Payment of Commercial Debts Regulations 2013, companies have legal right to charge statutory interest of 8% plus base rate and compensation, even if it was not stated in the contract. £40.00 compensation can be claimed for debts under £1000.00, £70.00 for debts under 10,000 and £100.00 for debts over £10,000. There is no minimum debt value.

 

  1. Build a good relationship with the person who is in charge of payments

At the end of the day they are still people, in times like these they have limited resources and lot of people to pay to. Ensure you are on top of their priority list by contacting them regularly – call them after sending an invoice, then again after few days. Know their name. Follow up.

 

  1. Deal with excuses politely and intelligently

Most common excuses involve passing the buck eg the person authorising the payment is sick/on holiday/gone for a month etc. The reality is, life doesn’t stop when people are off. Ask if there is someone who has taken over temporarily, how do they deal with emergency payments like employee salaries or are there any pre-authorised cheques. The owner of owner-managed businesses never truly switch off, they always check emails and are able to answer queries if it is urgent, which your invoice clearly is. If the client is really struggling, agree a payment plan with realistic timelines.

 

  1. Ensure you have evidence of service/product delivery and set up “read receipt” on invoices

Clients may use dispute as a delaying tactic and can often raise an issue days or weeks later. Ensure you have stated in your contract and on the invoice the time limit for raising a dispute. Once you send the invoice, ensure you have evidence of the delivery or “read receipt” so they cannot use a missing invoice as an excuse.

 

  1. There is free help available by Government

Notify https://www.smallbusinesscommissioner.gov.uk if you are a small business with less than 50 staff. The Small Business Commissioner (SBC) is an independent public body set up by Government under the Enterprise Act 2016 to tackle late payment and unfavourable payment practices in the private sector.

 

  1. Statutory Demands are very effective but will most likely ruin the relationship

If the legal letters do not work and the invoice is not disputed, you can issue Statutory Demand. It is a notice to bankrupt your client. It’s very effective and the client cannot ignore it, they must respond within 21 days. You do not need a lawyer to do it, it can be a simple letter detailing the invoice(s) outstanding and the fact that the invoice is not disputed, government page has more details: https://www.gov.uk/statutory-demands

It is unlikely that your relationship will remain positive after such action but it was probably getting sour at the point when they refused to pay and ignored your letters.

 

  1. Going to court will cost some money but is sometimes the only way

If the amount claimed is less than £100,000 you can also use Money Claim Online service (MCOL) which is Internet based HM Courts & Tribunals Service for claimants and defendants. https://www.moneyclaim.gov.uk/web/mcol/welcome. The fees start from £25 depending on the amount you claim. You may be asked to prove your claim in court, so you will need an understanding of the legal basis for your claim. If the client admits owing the money or do not respond, you can get the court to order them to pay without a hearing. However, if the other party does not act on the Order, you will need to ask the court to take action, which may result in paying another fee.

 

  1. Take out insurance and do credit checks on new clients

There are many different types of insurers, some only insure for insolvency, some also insure for protracted defaults. Some insurers may take 120 days to settle the claim, so look into small print when choosing an insurer.

If the claim is approved, up to 90% can be paid out. The insurer analyses the credit worthiness of each customer and provides a limit which is the maximum amount they indemnify if that customer fails to pay. If the insurer refuses to insure your client, you may want to consider requesting advance payments to avoid the risk of losing money.

 

 

  1. If you deal with a large client check out their payment practices online

As part of the package of measures introduced under the Enterprise Act 2016 regulations came into force in April 2017 requiring large businesses to publicly report the average time they take to pay their suppliers. This allows suppliers, including small businesses, to make informed decisions about who they do business with. Firms can check when large businesses pay their suppliers on https://check-payment-practices.service.gov.uk/search

Companies who have to report are large companies that meet two or more of the size criteria for two consecutive years: £36m annual turnover, £18m balance sheet total, 250 employees.

 

 

The key to successful cash collection is a process where you are clear about your terms and stay in regular contact with Accounts Payable team. However, if the client genuinely suffers cash flow difficulties, none of the above methods are likely to bring the cash in. It will then remain a judgement call if you will continue supporting your client through difficult times with a hope of coming out stronger the other end or withdraw your services.

 

If the company goes into administration the creditors rank behind the liquidators, employees, banks and HMRC. Creditors rarely get their money back if the company is wound up, luckier ones may get 10% of the invoice value. That is why it is so important to stay on top of the chasing at the very beginning and perhaps even provide incentives to go on direct debit or pay early. If you had “retention of title” in your contract at the point of sale, you may be able to recover your goods.

 

If you have identified your client as someone who can pay but is being difficult, notify insurers and Small Business Commissioner. It will be harder for them to carry on doing business with other suppliers.

 

 

Stay safe and well!

 

Riina Trkulja

Founder of www.AccountsAssistants.co.uk
About us:

I founded AccountsAssistants.co.uk after many years of experience of working with businesses – big and small and seeing the potential small changes in the way they run their business can make a big difference.

 

By working closely with our clients we have improved their cash flow and profits, identified cost savings, helped with debt collection, improved processes and mentored how to grow their business by using financial information.

 

I qualified as ACA accountant when working with KPMG, then moved on to PwC due diligence practice.

 

My most recent job was with James Caan, the Dragons’ Den investor. I worked in his private equity business as Investment Director and also Finance Director. I held numerous non-executive board positions with sole focus of growing and advising his portfolio businesses. I have been lucky enough to be able to drive change by improving cash management and efficiency of finance functions in big and small UK businesses.

 

AccountsAssistants.co.uk supports small businesses by providing finance team outsourcing, bookkeeping, accounting and Finance Director services at reasonable rates. We are Chartered Accountants and members of ICAEW. We also support our clients with all the COVID furlough and grant related queries. Feel free to get in touchon [email protected]

 

Web: https://www.accountsassistants.co.uk

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Linked In:  https://www.linkedin.com/in/riina-trkulja-53462b14/