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Tips to avoid bad debts - Tip 3

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Following the first two tips, here is tip number 3 about the importance of invoices. 

3     Invoices

Particularly in small businesses invoicing is often seen as an administrative job frequently put off until the end of the month or until there is a lull in “real” work to be carried out. Even in larger organisations it can be something done periodically rather than raising an invoice promptly as soon as the work is carried out. Obviously the longer until the invoice is raised the longer it will be until it is paid which can have a knock on effect on a company’s cash flow. 

Where possible raise invoices promptly. Ensure they are accurate and include, at the very least – 
•    Your full details including VAT number;
•    the customer’s name and address; 
•    Customer’s purchase order number if required;
•    full and clear details of the goods or service supplied, including when and where supplied if appropriate; 
•    accurate details of quantities, prices, any discounts and the total amount due;
•    payment terms and due dates;
•    how payment is to be made including bank details and any reference to be quoted;
•    the words - “If payment is not made in accordance with our agreed credit terms we will exercise our statutory right to claim interest at 8% above the Bank of England base rate together with compensation for debt recovery costs under the Late Payment legislation.” 

Find out, in advance, any specific information the customer requires on their invoices or any specific procedure they require you to follow to ensure prompt payment, such as sending them to a particular address or providing a copy by email. Consider checking with customers early on whether an invoice has been received and that there are no problems; it may help reduce later delays and excuses for late payment.

Check when and how your customer makes payment: if they do a monthly payment run and you just miss it you are likely to find it takes an extra month for payment to be received.

Make sure you have a system for dealing with queries promptly to avoid delays to payment. Keep a record of disputes raised and steps taken to resolve them in case a dispute escalates. Consider keeping a log of disputes so you can spot patterns both in relation to particular customers who may dispute invoices in order to delay payment but also in order to spot recurring problems or errors on your part which you might be able to take steps to resolve.

Ensure you have clear procedures for chasing payment promptly. A regular statement can act as a useful reminder to customers without them feeling like they are being chased. A timely chase letter reminding customers of your payment terms and that you may charge interest and compensation if payment is late is also useful. Don’t be afraid to pick up the phone and speak to someone, if everything is ok they should be able to tell you when your invoice will be paid. If not you can often discover if there is a problem with payment, either due to cash flow or you may find out there is a dispute which has been raised with a sales rep or account manager and has not been passed on to accounts. If there is not a problem ensure you are clear about your expectations and any penalties you will impose if payment is not received.

In the event of consistent late payment consider revoking any credit terms. A customer who does not pay is worse than no customer at all. 

For further advice, a review of your procedures and/or staff training contact Brethertons Commercial Recoveries team today.