Q&A: Chasing late paying customers
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Customers who leave you hanging on for payment can drain your cashflow and make it hard for you to pay your own bills. But there are ways to prevent and deal with late payers
René de Sousa (RdS), senior procurement specialist at the Chartered Institute of Purchasing and Supply and member of the Better Payment Practice Group (BPPG), tells Tom Whitney how you can prevent and deal with late payment.
How can I avoid doing business with customers who don't pay their bills on time? RdS: Carry out a credit check before offering new customers credit. Speak to people in your industry to assess a customer's reputation and ask for trade references from the potential customer's suppliers. Once you've done that, agree credit terms up front. This is as important a part of the contract negotiation process as price, service and delivery, and clear terms will help avoid disputes further down the line. You can also reduce the risk by giving new customers low credit limits to begin with, until they have earned your trust and you know whether they are prompt or late payers. What do I do if they don't pay on time? RdS: Ring the customer and find out why they're paying you late. They might just need a memory jog, or it might be that there is a problem they haven't pointed out to you. If they have a cashflow problem, negotiate a part-payment and reschedule the remainder. Make sure you write down who you spoke to and what you agreed, so you have the written evidence if it ends up in court. It shows you've made the effort to chase the debt. Is charging late payment interest a good idea? RdS: You have a statutory right to claim interest on any overdue commercial debts. But this takes time and expense to organise and you risk alienating your customers. Don't go in heavy-handed - you're looking to have a productive commercial relationship with your customer and you don't want to spoil that. Are there any incentives I can give to customers to pay on time? RdS:Well, even if you don't intend to charge interest, it can act as a good deterrent to late payers. But offering discounts to customers if they pay early is a much better idea. What if I've done everything and they still don't pay? RdS: If you fail to reach a resolution with a debtor, you can take court action, but this should be a last resort. It can be effective, but it can also be expensive and time-consuming, and it means a complete breakdown in relations. You should warn your debtor before starting legal proceedings. A solicitor's letter makes it clear you are serious and many customers will pay up immediately, or at least settle out of court as they will usually want to avoid the costs, hassle and uncertainty as much as you.
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