Imagine a world where your invoices were paid immediately they became due and you never had to spend time chasing payment. A world where no customers had to be put on “stop” because their account was overdue. And where you never had to deal with debt recovery lawyers and the increasingly slow and expensive County Court system. Think of all the things you could do with the time and money this would save you.
While for most businesses the above is unlikely to become a reality any time soon there are some steps you can take to minimise bad debts and improve your cash flow. This is a topic that has been in the headlines a lot recently and yet many businesses are still failing to follow this simple advice. Over the next few weeks we will highlight one tip a week that might seem obvious but is often forgotten.
The first tip we are going to discuss is:
1 Know your customer
It is essential to properly understand who your customer is. If you don’t have this information right at the start you cannot properly consider credit terms, you can’t invoice accurately and you cannot pursue legal action if the relationship breaks down.
Make sure you have the full name and legal status of the customer. It the customer is a sole trader or partnership the individuals are personally liable so make sure you have their full details including their home address not just any trading address.
A Limited Company/LLP/Plc. is a legal entity in its own right. The company is liable for the work carried out and for payment of invoices. No employee is directly responsible, not even the ‘owner’ or director. This also means that if the company stops trading any new company is not responsible for payment however similar the business appears to be.
You can check a Limited Company’s details for free at - www.gov.uk/government/organisations/companies-house
You should also verify this by requesting a copy of their headed paper or other documentation.
Remember that a shop, pub and many other businesses may trade under a particular name, the one that appears above the door, but this is unlikely to be the legal entity responsible for payment of your bills and you need to be sure who is in the background.
Be wary of any prospective customer who is obstructive at this stage or fails to provide the requested information, and bear in mind that if you are struggling to get the information now it will be far more difficult if the relationship breaks down. Similarly don’t allow yourself to be pressured into skipping this stage due to some purported urgency to supply.
Consider using a reputable credit reference agency to check a new customer’s details and their credit status. Do not extend an amount of credit which the customer is unlikely to be able to repay. Also consider the effect it would have on your business if a credit account was unpaid and manage credit limits accordingly.
You may want to obtain references from other suppliers. If so these are likely to be far more effective if you choose the referee rather than accepting those offered by the customer.
When receiving orders from a customer check the details match those supplied when setting up the account. Ideally get orders in writing (email, fax or online are all fine) so there is a record of both the order and who placed it and cross reference the details each time.
Do ALL of the above EVERY TIME. There is a law (the name of which is unprintable here) that states the one time you fail to do the above is the one customer that will default leaving you with a mess that will take far more effort to clear up than the effort it would have taken to follow your procedures at the start.
For further advice, a review of your procedures and/or staff training contact the Commercial Recoveries team today.