As a business, no matter the size, it is vital that you are paid what is owed to you by customers and clients. Late payments or avoiding payment altogether for goods and services is an issue for a lot of our clients.  Non-payment can be incredibly challenging for your cash flow, and therefore, have a detrimental impact on your business in the long run.

Managing your debtors effectively is key for any business.  We set out below a number of steps you should take to effectively manage your debtors.

The Debt Recovery Process Explained

Invoice

Whether they have been sent previously or not, each request for payment needs to be accompanied by the relevant invoice and purchase order (if appropriate). This works as the paper trail should you need to subsequently escalate the matter.  Prior to the first invoice, you and your customer should have agreed upon payment terms. These payment terms should specify exactly when they need to pay, and what will happen if they don’t.

Reminder

If after invoicing you have not received payment it is important to chase the customer. Sometimes emails do get lost or are overlooked.  The debt recovery process of sending reminders could either involve sending further emails or chasing up via a phone call. We suggest keeping a note of the call on the file.  If the customer is ignoring your calls, keep a note of when you rang as you might need to refer to it subsequently.

Withhold Work?

If payment is being withheld for any length of time without reason, you should consider whether you ought to stop any further work for this customer.  You may not be able to stop work immediately (due to the nature of the contracted relationship) or you may have a longstanding relationship which makes it difficult to stop work however you need to bear it in mind, at least as a threat. In many instances, this is likely to work as the other business may suffer without the services that you are providing them.

If this doesn’t work, then seeking other forms of resolution must become your next step without delay.

Final Notice

A final notice, in all likelihood, is maybe the last correspondence that you send to a customer in the debt recovery process prior to taking action against them. This should outline a time period or deadline in which to pay the amount due including interest and any further costs or expenses that may be due. In many cases, the customer will respond to a final notice.

However, if the final warning is not successful, then you need to consider legal action.

Legal Action

When it comes to legal action in the debt recovery process, you have two options – legal proceedings or the insolvency route.  There are advantages and disadvantages to both options and we can guide you through the choices. At Pannone Corporate, protecting your business is important to us.

We have years of experience in looking after the legal needs of a wide range of clients; including many household names such as Boohoo.com, DHL, Iceland Frozen Foods and L’Oreal.  Our debt recovery team can help you to successfully recover business to business debts and can be contacted at our Manchester office on 0800 131 3355 or via the contact form.

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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.

 

Credit Checks

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.

 

Director Guarantees

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.

 

Prepayment

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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Huge congratulations to Pannone's Corporate team who were highly commended at this year's Manchester Legal Awards. Partners, Mark Winthorpe and Tom Hall,...

Read more...
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PLG International Lawyers firms, Lamy Lexel and Pannone Corporate, have advised on the cross-border acquisition of UK-based eProcurement software company...

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