Tackling Late Payment: Going Back to Basics

For myriad reasons, businesses in all sectors – the fire sector among them – are under pressure. Poor cashflow management, compounded by bad debts and customers who are slow to pay, only serve to exacerbate the situation.

While it’s tempting to lay the blame solely on late payment, businesses must shoulder some of the responsibility for their own poor credit management practices. Putting it another way, Best Practice credit management can limit the amount to which a business finds itself financially vulnerable.

How, then, might the spectre of bad debts be avoided and payments accelerated? Much can be achieved by going back to basics and, thereafter, doing the basics well.

Know Your Customer

First and foremost, even the most basic checks can avoid potential embarrassment later on. Know Your Customer should be the mantra of every director, every sales executive and every individual in the credit team.

How well do you know the company with whom you’re dealing? What’s their Company Registration Number? Do they even have one? What’s their legal status? Are they a limited company? A partnership, perhaps? A plc? An LLP?

All such information is important, not least to ensure you invoice the correct legal entity at the point your product/service has been delivered.

Using data from reputable credit reference agencies is always advised to supplement the information stored at Companies House. This enables you to dig deeper and reach beneath the company’s initial layers.

It will help you in determining the amount of credit you want to extend, especially so since their success and survival may depend on the stability of their customers and other suppliers.

As well as published sources, there are also other tactics you can use to discover more about the company you keep. Looking through their social media accounts (ie LinkedIn, X and Facebook, etc) and any comments around them can give you hints about their reputation and how they treat their supply chain.

Traditional media coverage unearthed through Google searches can also afford you a better steer on their financial viability. Google Search shows if the warehouse they say they own even exists.

Documented rules of engagement

Once a new customer is being onboarded, the Terms and Conditions to which you agree are absolutely critical. They should be documented with explicit payment terms put in place.

The concept of ‘30 days’ – a particular favourite among politicians and the media for denoting Best Practice – can still mean different things to different people. Is that 30 days from the date of invoice, receipt of the invoice or the end of the month, for example? This needs to be made crystal clear or else 30 can so easily become 50 or more.

When you are invoicing, make sure you understand their payment and invoice approval process and whether, for example, a purchase order is required and what other specific information may be needed. Make sure the amount you are invoicing is also correct in terms of what has been agreed. Even a penny difference can cause the payment process to grind to a halt.

Customer interaction

In terms of how you interact with your customers, build a strong relationship with key people in the company. They could be invaluable when you need to chase payment ahead of other suppliers.

At your end, keep the ledger clean and have absolute clarity about what invoices are outstanding. Confusion is a great obstacle to payment and can easily be exploited by those who are seeking to delay paying what they owe.

Making contact in advance of the due date to ensure the invoice has been received and is correct will also reduce the likelihood of a payment subsequently being held in dispute.

Keep large totals separate from smaller ones. There is nothing to be gained by having a £10,000 invoice comprising £9,800 for the product and £200 for the delivery held up because the delivery charge is being disputed.

Even if you have clear lines of communication with the customer, always follow up on the day the invoice is due. Never wait and hope for the best. Hope is not a strategy and someone else will be being paid while you’re left waiting.

To that end, never be afraid to escalate a late payment to your collections team and/or a third party activity sooner rather than later. A customer that doesn’t pay you isn’t a customer worth having (or keeping).

Seek advice early

Such advice should not come as a surprise, but in my 40 years in credit management, it still amazes me how businesses are quick to blame everyone else when they’ve ignored many of the fundamentals themselves.

Going back to basics may not always be successful, but much like winning the National Lottery, you first have to buy a ticket. If, despite all your best efforts, an insolvency may still be looming, talk to experts. They might be able to help the business avoid failure and, if the worst happens, they can work with you for the best outcome from the unfolding insolvency process.

Philip King FCICM is the Former Small Business Commissioner and Advisor to PKF Littlejohn Advisory (www.pkf-l.com/services/advisory/)