Late Payments, the Biggest Cash Flow Killer - by Angelee Patel
27th June 2012 - Cohen Cramer
Posted in: Disputes
With the UK economic climate frozen in troubled times it is more important than ever that companies understand the risks and opportunities associated with their operations. When times are tough, customers take longer to pay their bills. Many businesses are put to the test in a survival of the fittest marketplace where inadequate debt management procedures, outstanding invoices and uncertain terms and conditions all take on a ‘domino effect’ and see the demise of many once successful companies. So what separates the winners from the losers and how can you as business owners see your way out of the storm?
Our Litigation department seeks to highlight what you can do to effectively minimise late payment, and consequently provide the support and services you need to tackle late payments helping you to get paid as quickly as possible.
As a business owner or manager you should ask yourself 5 key questions:
- 1. Can you accelerate payment legally?
- · Are your payment terms agreed before you seek to provide the goods / service?
- · Do your terms and conditions state when payment is due?
- · Is it time you changed your payment terms i.e. from 90 days to 30 days?
- · Will acceleration affect your existing clients?
- · Is there any way of obtaining payment in advance?
- · Is there an opportunity to re-negotiate e.g. pay 50% now and 50% later?
- 2. Can you charge interest on late payments?
- · Under the Late Payment of Commercial Debts Act 2002, businesses have a statutory right to charge interest for the late payment of commercial debt, at a rate of 8% above the Bank of England’s reference rate – have you made it clear that you will enforce this right if an account becomes overdue?
- 3. Are your invoices correct, accurate and sent promptly?
- · Invoice queries and poor administration are common reasons for late payment
- · Spread out your invoices and do not issue them all in one particular month. It is advised to have a constant stream of cash flowing into the business
- 4. Do your management systems effectively monitor payments?
- · Tighten up credit control – keep accurate records and organised accounts
- · Use regular credit checks on clients before agreeing to delayed payment terms
- · Monitor your terms, clarify any ambiguous clauses and lock down your terminology to make your payment terms clear
- · Monitor payment behaviours - If your client has not paid and the debt continues to grow, have you thought about stopping the goods or services you provide?
- 5. Are you rewarding your good customers?
- · Do you promote a positive payment culture?
- · Do you offer small discounts for the early settlement of bills?
To help in your business journey, we can work with you to help improve your debt collection and cash flow management procedures. If you would like assistance please contact our Commercial Contracts and Debt Recovery department on 0113 244 0597