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Don’t let debtors ruin your business – how to keep a rein on them
In an ideal world, all debtors would pay either in advance or on time. However, in the current climate this concept is becoming more and more unlikely. It’s easy to put off overhauling your credit control system, accept that debtors are going to pay late and just be grateful when any money comes in, but this could be a fatal error.
Businesses need cash flow to survive. Unless you are in the incredibly rare position of providing something your debtor simply can’t do without, how do you ensure your invoice is paid first?
1. Be clear who your debtor is: sole trader, partnership or company. Check Companies House or engage a credit checking agency to assess their risk. Carefully drafted directors guarantees may enable you to claim from the directors personally if the company goes bust. Keep contact information up to date and accurate.
2. Keep your terms and conditions up to date and ensure they form part of every contract.
3. Decide what rate of interest to charge and when it will kick in. If you do not have a contractual rate and your debtor is a business, the Late Payment of Commercial Debts (Interest) Act will apply which is currently 8.5%. Refer to interest applying in your letters chasing payment.
4. Have a credit control procedure in place and stick to it. Ensure you speak to the person who has the power to do something and send all invoices in the same way, so it’s harder to say they didn’t receive one particular invoice. Keep records of all phone calls and put agreements to pay by instalments in writing, making it clear what will happen if any instalment is missed.
Find the time to consider your terms of trading and credit control and take action before it is too late.
For legal advice on debt recovery or any other commercial disputes, please email email@example.com.
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