How do I ensure I will get paid?

There are primarily two steps here. Have the right customers and have a good credit control system.

What do I mean by the right customers. Well I remember my old mentor saying, “A good customer is only one that pays!”. How often do you check that your customer has the ability to pay before supplying your goods or services to them?

Credit control is most appropriately considered as controlling your risk. Is your customer a good customer? Are you controlling when you are going to be paid or knowing the risk of potentially not being paid? Whilst also understanding the risks to your business if you are not paid?

Depending on your business and the level of transaction value, then you should consider a form of credit check on your customers. If they have a poor existing credit record, then it is unlikely to improve with you taking them on and it may be that they came to you as their existing suppliers have them on stop? The credit check could be by way of a bank or trade reference or a credit agency report.

One of the first steps are to ensure that you have clear payment terms (for example paid within 30 days of the date of the invoice) and ensure these are clearly communicated with all your customers. It should be part of the sales process, confirmed in any contract and repeated clearly on any invoices. As part of your terms also ask to be paid direct to your bank account, as this reduces any further time or potential lost cheques!

Once these are agreed, there should be consistency across your business. Ensure all of your team are talking to your customers on the basis of these terms, otherwise you may find sales and finance teams are talking at cross purposes. Have you ever heard about the finance team chasing the debtor for payment, only to be told that sales agreed different terms.

However, this alone will not ensure you get paid, let alone paid on time.

You should then establish a series of steps to continually communicate with the customer until they have paid and understand the ‘real’ reasons for any non-payment. Always keep notes of the conversations to later reference if needed and always ask when the payment is likely to be made.

Your steps may include sending account statements, reminders, letters, and warning about the amount due, plus making telephone calls at the appropriate times. Do not be afraid of issuing letters warning of possible legal action. For some businesses, it takes these letters to actually pay, as they prefer borrowing from you (free money) than their bank.

Don’t become the bank of your customer!

Here lies a potential issue for some business owners. How to collect the money due whilst keeping a good customer relationship for future sales. Well firstly, as mentioned earlier, a good customer is only one that pays, so you should be firm when chasing. If you are not comfortable with chasing the money then I suggest you delegate or outsource this role. Some businesses see the cost of hiring someone to chase the money and do not implement. However, in reality the debt is already a drain on your resources, it is already a cost and you want to take action as effectively as possible.

To help small and new business the UK Government have taken steps to try and help with the risk by introducing the Late Payments Act. One element of the act allows you to charge interest on overdue invoices. They have also made changes in the court procedures to make that process of claims quicker to implement.

You should have a credit control policy that everyone follows and be firm in the collection of your monies due. Sometimes you may have to be realistic to their ability to pay, unless of course they are persistent liars! However at all times you should retain contact, keep control and monitor the commitments given to you.

To help, you may find my knowledge base article How can I get paid on time? helpful, as I share some steps you can take to get paid!

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