Here at Creditsafe, we regularly talk to our customers for feedback on what their biggest problems are to try to find different and better ways in which we can help them. Our UK customer base have reported the biggest problem is late payments. Gone are the days when business was done on a hand shake and invoices were trusted to be paid on time. Unfortunately fraud is on the rise in the UK and sometimes companies just can’t afford to pay their bills because they too have felt the knock on effect of a late payment in their own business. Whether its companies deliberately setting out to defy you or genuine businesses that are struggling with their cashflow, the end result is the same. Either you could be paid late or not at all if you are dealing with unstable companies. At some point or another it is inevitable that you as a business owner will have your fingers burnt by late payments, but once it’s happened, what can you do? Here are some crucial steps to take if you’re owed money and are prepared to chase it.
Keep communication lines open
If a payment becomes overdue, the first thing you need to do is communicate with your customer. At this stage, your customer should have received your invoice, plus a follow up email to remind them that their payment is due. If it is past payment, try contacting them again to see if they do have plans in motion to get your money to you. Working together with customers who are struggling to pay you can be more beneficial than arguing with them and demanding money immediately or threatening legal action. By keeping communication streams open and allowing a bit of leeway, there is more chance of retrieving your money than if the relationship turns sour. Remember, communication is key.
If you haven’t previously credit checked your customer, do it now. You can check all their key financials, payment habits and payment trends on a Creditsafe company credit report. Check their Days Beyond Terms (DBT) to see how long they usually take to pay their bills. If you feel you can’t do business with a company who will always pay you late, you could either adjust your cashflow to accommodate their payment terms next month, or you could try cutting the payment terms to a shorter term. For example, if the company’s DBT is 10 days, and you want to get paid within 30 days, you could change your invoice term to 20 or less days. If none of these options are appealing to you, you may have to stop doing business with them all together. Their company credit report will give you all the information you need to make a decision, and we thoroughly recommend credit checking customers before doing business with them and monitoring them throughout the duration of your business relationship.
Debt chasing letters
If communication with the company has failed and you have yet to be paid, you could start to send debt chasing letters. These can either be written by yourself or you could have them professionally sent for you. Creditsafe offer Debt Chaser, which is a letter sending service offered if you have customers with overdue invoices. You can choose from a list of templates and how often you want to send the letters and Creditsafe send them on your behalf whilst minimising the costs.
Debt recovery and the legal route
If debt chasing letters still receive no response from your customer, it may be time to go down a more serious route. Getting debt recovery or legal firms involved can be costly, so it may be worth finding out how much it would be to get your money back vs the cost of the actual debt. We advise you start with a debt recovery firm as it is the most cost effective option. Many debt recovery firms work on a no win no fee basis and it can often be quicker to receive your money compared to going through the courts. The courts could take weeks to get a hearing and your bills could mount up. However if a debt recovery firm still doesn’t work for you, taking a company to court could be your last resort. It is worth keeping in mind that depending on the hours spent on your case could mount up costly solicitor fees and there is still no guarantee you will get your money back.
Set future precautions in place
Getting hit by a late payment can be so damaging for a company, especially if they aren’t expecting it. By setting due diligence in place for every new customer you take on board, you can reduce your chances of being stung. The Creditsafe product suite offers company credit reports on over 190 million companies worldwide, monitoring tools, prospect data plus much more. These tools can help you make sure potential customers are creditworthy before you do business with them. You can also monitor them whilst they remain a customer; after all circumstances can quickly change. By being ahead of the game on your customers’ payment habits and key financials you are able to forecast your own cashflow to be prepared for when their payments will reach your business.