I must have a face for radio as I was invited back onto the James Hazell show on BBC Radio Suffolk this morning to discuss late payments and bad debt, and what small businesses can do to mitigate the risk of this dreaded yet all too familiar scenario.
I was joined by solicitor Keith Holland of Smith & Co Solicitors who covered off the legal aspects and gave some solid advice for de-risking your client relationships.
Alas, as most small business owners know, and have probably experienced, chasing late payments is frustrating, stressful, time-consuming and potentially overwhelming. It's the last thing you want to be doing when you need to concentrate on running, and hopefully, growing, your business.
Late payments, unpaid invoices and bad debt can quickly lead to cashflow issues that can affect your staff, partners and other stakeholders in the supply chain. Despite various government-backed initiatives, "big business" is often the biggest culprit and having to suffer 90-day payment terms tends to be seen as a cost of doing business at that level.
Invariably, SMEs suffer the most due to a lack of resources (for chasing payments) and a lack of bargaining power (for enforcing payment terms). So, how can businesses protect themselves against non-paying customers?
You can listen to the interview below for an overview of the best plan of action and the mechanisms you can put in place to avoid non-payment of invoices and the associated knock-on effects.
Communication: Get things down in writing at the start, e.g. service agreements, contracts, scope of work, etc. This will be useful evidence should you need it.
Due diligence: Be organised and research a new customer before committing to an arrangement that could leave you high and dry.
Staged payments: Be wary of new customers who want to pay after work has been completed. It's perfectly reasonable to request an upfront payment or deposit followed by regular payments.
Personal guarantee: If you're dealing with a limited liability company, and if the contract value makes this worthwhile, consider asking for a personal guarantee from the company's directors so you'll be protected if the company becomes insolvent.
Get legal advice: If you start to suspect an issue could be arising, seek professional legal advice. Taking a customer to court tends to be a last resort, and an amicable resolution is always desirable, but if you smell trouble brewing, talking to a solicitor will give you a proper understanding of your options and potential avenues for recourse.
If you have a question about anything discussed on the show or any other kind of commercial finance enquiry, please get in touch. We're here to help.