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The key to making sure your customers pay up

In our weekly series on legal matters, Clare Templeton, head of the commercial dispute resolution department at Walker Legal, talks about improving your cash flow management

By Clare Templeton

Published 27/10/2015

Cash is king - and the key is effective cash flow management
Cash is king - and the key is effective cash flow management

Happiness is a positive cash flow, said Fred Adler. And he's right. However, ask a room full of business owners if they enjoy dealing with the money side of the business, and most of them will shake their heads.

The government has recently announced proposals for a small business commissioner to help tackle payment disputes, unfair practices and to help reduce the £26bn owed to small businesses in late payments.

Cash is king, and the key is effective cash flow management. There are some simple steps you can take to help manage cash flow and keep on top of finances.

1. Agree clear payment terms

Establishing clear payment terms at the outset is vital. It's better to know what to expect than to leave things to chance and wonder why the money hasn't arrived later. Watch out for the "battle of the forms" - if you have written terms and conditions, ensure it is those that take precedence over your customer.

If their documents contain terms different to yours and you fail to challenge them, their terms may take precedence.

Check whether your customer has signed up to the Prompt Payment Code.

It is an initiative with the Chartered Institute of Credit Management and introduces a 60-day maximum payment terms, and enshrines a 30-day payment terms as a norm for all signatories as standard practice.

2. Invoice promptly and correctly

If you only invoice 14 days after you provide the goods or services, it is going to take 14 days longer to receive payment. Sending invoices by email is quick and efficient. Make sure it is correct - preparing credit notes and reissuing invoices will delay payment.

State on your invoices, the words: "If payment is not made in accordance with our credit terms, we will exercise our statutory right to claim interest (at 8% over the Bank of England base rate) and compensation for debt recovery costs under the Late Payment legislation".

Issuing a further invoice for interest and late payment charges is a good way of gaining your customer's attention.

3. Make it easy for customers to pay you

Consider accepting online payments via PayPal, or accepting credit card payments. Cheques are used infrequently in business now. Don't be afraid to ask your customer to make an electronic bank transfer, which means you get your money faster.

4. Don't delay chasing overdue invoices

If you have chased payment but still haven't been paid, don't let it grow. The quicker you avail of external assistance, the better the chances of recovery. Stop supplying any further goods or services - if they are important to your customer, this might just be the bargaining tool you need to get paid.

It is also important to consider the commercial realities of the situation. The expression "you can't get fur from a frog" rings true - if the customer is insolvent or has no available funds, further action is unlikely to help, and you could simply be throwing good money after bad.

There are various legal options, and you should discuss with your solicitor which one is best for your circumstances. There is not a one size fits all approach to recovering your money.

Your solicitor should know your business and your priorities, and should be able to advise on the most appropriate recovery method.

Contact Walker Legal at 6 Bridge St, Portadown, tel: 028 3833 7591, and at 7 Donegall Sq West, Belfast, 028 9091 8461

Belfast Telegraph

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