Author - Robin Bowman, Senior Business
Editor
Recent research into late debt payments to businesses reveals
the UKs SMEs are having a tough time.
The findings show that businesses are having to wait longer to
get their money. But the research, by Experian, also revealed
that where your business is based makes a huge difference as to how
fast you get your money.
Businesses in the North West have to wait the longest for their
money and have seen the biggest deterioration in the time it takes
for their 
invoices to be settled. The time grew
by over two days to 36.72 days in July, August and September,
compared with the previous quarter.
The research also reveals the bigger the firm, the longer they
have to wait for payment to be received.
If you employ one to two staff, your average wait time is 20.56
days, compared to 34.8 days if your company employs over 500
people.
Of course, late payments are not bad debts, but it follows that
when one rises in tough times, then so does the
other.
With this in mind, what's the best way of going about chasing a
late payer without making the situation worse?
Here are some key tips:
The first rule is to communicate effectively - and that means
before there is even a problem. It's important to ensure that your
customers understand your terms and conditions before they do
business with you. It's a good idea to include them in writing with
any quotes or estimates you provide. At the very least, they should
be explained verbally. In doing this, when the customer
proceeds, they are effectively agreeing to these
terms.
If you don't state your payment terms, the law states the
default period is 30 days from when the service is completed or the
product delivered, or when your bill is delivered, whichever is
later.
If a customer has not paid by the deadline, then it's vital to
contact them immediately. Let them know straight away that money is
due and that they haven't paid according to your terms and
conditions (which you made them aware of earlier).
It isn't necessary to be overly formal at this stage, but it is
important to be fairly insistent and clear that you are asking for
money that is now not due, but overdue.
This can be done in a letter, or often just as effectively at
this stage, by phone call. Keep a record of this
communication - the date, what was said, who was spoken to and what
undertaking, if any, was given.
If you don't receive payment almost immediately, then it's time
to up the pressure. Give the debtor a maximum of seven days
to pay and then get in touch again. A phone call is acceptable, but
it is a good idea at this stage to also put the demand in writing,
stating clearly that the debt is overdue, by how long and what
communication there has already been.
If there is an explanation for non-payment, you will have to
make an assessment about whether it is reasonable. However, if an
explanation is only forthcoming at this stage - rather than before
the payment fell due - it is probably sensible to at least suspect
you are being fobbed off.
If the money is owed by another business, make sure you get a
relevant person's name, so you can deal directly with them at all
times. The more pressure this individual feels, the more likely
they are to prioritise your demand.
The late payment may simply be due to an administrative error
and a missed payment cycle. Once again, you will have to make an
assessment about any explanation. But it's vital now to get the
debtor to agree on a date by which the money will be paid.
Again, keep a record of all these exchanges.
If the deadline slips again, it's important to keep track of
this and not to let up the pressure. It's all too easy to be
sidetracked.
Now is probably the time to take a more robust
approach.
If it's a business you're dealing with, then try and move up the
chain of command and speak to someone senior to explain the
situation. Often embarrassment will be enough.
Whatever else you do now, do not accept excuses and non-specific
promises.
If you're dealing with an individual, you will probably now need
to threaten county court action or debt collection. Stress that
this is a last resort, you will take the action only reluctantly
and that the easy way to avoid it is, even at this late stage, for
the bill to be settled.
You may want to make this threat through a solicitor depending
on the size of the debt versus the cost of a solicitor's letter;
but an official and legal-sounding communication can often jolt a
debtor into action.
Ensure all records of your communications are up to date and
detailed.
Usually, the threat of legal action will settle the matter, so
long as the debt is clearcut.
If the debtor is a business you could also threaten, perhaps
through your solicitor, to make a statutory demand, promising to
apply to court to formally wind up the debtor's business if the
bill is not paid within 21 days.
If the debt is disputed, it's important to show you have done
your utmost to negotiate and reach an agreed conclusion. And
a cheaper option than going to court is to use an alternative
dispute resolution service (ADR) - this can be mediation or an
arbitration service. Not only is this cheaper than court action, it
is less hostile.
Robin has been a journalist for more than 20 years,
during which time he has held several senior media management
positions in both Fleet Street and Hong Kong. Robin recently
returned to the UK after being based in Italy for six years. He has
a passion for business innovation.
The content of this article reflects the views of
the author and may not necessarily reflect the views of Premierline
Direct.
