Cash flow plays an integral part to the smooth running of your business. So, when customers fail to pay your invoices on time or at all, it can have a significant impact on cash flow and the financial health of your business. To resolve this, you may have to begin the debt recovery process to recoup your debts.
However, the commercial debt recovery process can be a costly and time-consuming exercise. In some cases, the costs may equal if not exceed the debt. It is therefore important to have a system in place to ensure that customer debts do not accrue.
Before you enter into a contract with your customer, it’s always recommended that you carry out a credit check. A credit check is a simple and effective way to assess the financial behaviour of your customer. It gives you an insight into their credit history, showing you information that could influence your future business with them, such as whether they have a history of late payments. If a customer has a bad credit rating you can consider implementing measures to minimise the risk of non-payment.
Another way you can avoid the commercial debt recovery process is to consider whether it is necessary to obtain personal guarantees from the directors of your corporate customers. This would help to secure the financial obligations of the company. Additionally, it sets in stone something they will be required to uphold.
Obtain prepayments from your customers to ensure that you are paid in a timely manner and that you are guaranteed payment for part of your services. They should be obligated to pay on a specific date, usually every month or quarter. This guarantees payments to help with your cash flow.
Customer ‘Stop List’
To prevent customers from accruing further debt implement a ‘stop list’. This list should prevent persons within the organisation from providing further services to customers who are overdue on their payments. This should act as an incentive for customers to pay on time if they wish to receive the services you can offer them.
Terms & Conditions
Ensure that you have robust terms and conditions in place. These should clearly set out the customer payment obligations and your rights in the event that the customer defaults on payment. This should help in future instances when the commercial debt recovery process may be necessary.
Should you require assistance with your debt recovery process please contact Pannone Corporate on 0800 131 9000.
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