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Getting Paid - and getting paid on time - for businessesDate: 26 January 2005 Getting paid … and getting paid on time … is possibly the most important factor for businesses of all sizes. A survey undertaken by the Credit Management Research Centre at Leeds Business School showed that 32% of the reasons given for not paying businesses on time are excuses made to disguise intentional late payment. Excuses for non payment ranged from ‘the director is away on holiday’ to ‘all the names are put in a hat and pulled out - if yours is pulled out you will get paid, if not, it will stay in the hat until next week’ and ‘I cannot make payment until the planets are aligned, which is only twice a year.’ "Excuses may range from the sublime to the ridiculous," says Joyce Duncan, director of operations at Enterprise North East Trust (Enterprise). "But in reality, non payment is no laughing matter for businesses of all sizes. Late payment causes thousands of businesses to suffer severe financial pressures. It’s critical for SMEs to have good credit control since many small and medium firms find it hard to cope with the disruption to cash flow which bad debts cause. A survey in 2004 showed that a quarter of small business owners are worried that late payments could prevent them paying wages to staff if customers didn’t settle their debts for just one month." Enterprise, which provides business support and consultancy to companies across Aberdeen and Aberdeenshire, highlights some of the steps which companies can take to make sure they are paid … and paid on time. Credit Worthiness Check a new customer’s creditworthiness before drawing up a contract. You can do this by contacting companies such as Equifax (www.equifax.co.uk) or through Business Gateway’s information centre (0845 609 6611). It is easy to be carried away when a new customer is keen to buy, but it is important to keep your feet on the ground. If a new customer is not local ask yourself why they are buying from so far afield – are they perhaps on bad terms with their local suppliers due to bad payment? Consider undertaking a credit check on new customers who look to place orders of significant value. You should also ask for trade references and follow through on these in writing. Remember to undertake credit checks on your existing clients too. Payment Record Has your client defaulted on payments with you before? If they have an unacceptable payment record with you, ask for payment in advance or on delivery. Credit Limits Set strict credit limits for your company and keep to them. Once a customer gets to the credit limit then ensure that you are paid before extending further credit to them. If you continue to extend credit then you may be placing the company at increased risk of bad debt. Contract and Terms of Conditions Companies of all sizes should have unambiguous and legally sound written contracts and/or terms and conditions of trading. These are essential to protect your company against poor payers. You can also consider part payment terms, where a deposit is paid in advance. Involve Staff You should make sure that all relevant staff know your policy on payment terms and ensure that they understand them. This will prevent them from negotiating terms which are not company policy. Customer Contact Making sure that you keep in close contact with your customers won’t prevent poor payment, but it can help to keep a rapport going if things start to go wrong. Often your contact won’t be the person responsible for making sure that you are paid, but if they know you are experiencing difficulties in receiving payment, a good relationship will help. Make sure you have a good contact in a company, with whom you regularly check satisfaction levels, so that, even when money is tight, you may be top of the list to be paid. Statements Send regular statements and chase payment politely but persistently by telephone, fax, e-mail and … if necessary … by visits to your customers. Some companies have a ‘policy’ of not paying until they receive a statement so make sure that you send statements of account regularly. Follow through with ‘seven day’ letters if necessary. Stop Supplies or Service You may have to put a "stop" on supplies to customers who are not paying. Their desire to continue to use your company may act as a spur to payment. Debt Collection If all else fails you will have to consider further action. A debt of £750 or less can be pursued through the Scottish Sheriff Court without the need for a solicitor. Sheriff Courts deal with three different types of case
More information about each of these can be found at www.scotcourts.gov.uk where forms and guidance notes can be downloaded. Further information on "For small business owners it can be hard to find time to implement good credit control measures," continues Joyce Duncan. "But it’s vital to the health of the business to ensure that the cashflow of the business is protected. The Better Payment Practice Group website www.payontime.co.uk has helpful advice on all elements of being paid promptly including your legal rights to charge interest. Enterprise can provide business advice for all sizes of business on all aspects of running a successful business, including credit control. Enterprise’s experienced business advisors provide a ‘one stop shop’ for all business development needs from start ups to well established businesses. Enterprise can be contacted on 01467 672500 or at www.enetrust.com. Ends For further information contact Note To Editors A head and shoulders image of Joyce Duncan is available |
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