A. David Robertson writes:
Tightening credit conditions have had a knock-on effect, with many plcs changing payment terms from the standard 30 to 90 days. This may be the case with your client. Alternatively, it may have become the victim of late payment at the hands of one its customers? Has there been a change internally you’re not aware of that is hitting its finance department? These questions should have been raised before your client was four months overdue. Communication from the minute a payment becomes overdue is key.
By law, you are entitled to charge interest on the debt, which is set at the Bank of England base rate – referred to as the reference rate – plus 8%. You can also make a small claim to cover the cost you incur in recovering the monies owed. If things are not resolved by highlighting your intention to charge interest on the debt, the next step is usually to involve a solicitor or engage in mediation. Failing that, you are faced with taking legal action through the courts. However, legal action should be the last resort, if you wish to have any chance of getting payment back on track with this client and enjoying a fruitful working relationship in the future. Pick up the phone, arrange a meeting, get in front of the client and find out what is going on. You have little hope of making an informed decision about the best course of action if you don’t start communicating.
It is worth reviewing your financial practices and how you deal with late payment. Simply setting out payment terms for providing goods and services, and credit checking clients at the beginning of a new relationship is often overlooked in the excitement of winning a large contract. Finding everything out about a new client and using credit agencies to check details is standard business practice and one which shows due diligence on your part. However large the client, or well known the company, never assume that all is well financially.
David Robertson is the chief executive of Bibby Financial Services, a specialist in the provision of cashflow facilities for small and growing businesses.
www.bibbyfinancialservices.com