No matter how big or small your business, cash flow is vitally important to continued financial success. If a business does not get paid, it can struggle to trade.
Stephanie Whitchurch, a solicitor at Tallents in Newark has written a guide to getting paid which will help small businesses receive prompt and regular payments.
Says Stephanie: “Non-payment is usually caused by one of three reasons: either the client can’t afford to pay; wants to delay payment; or disputes the payment. However, there are a several steps that every business can take to avoid payment problems. This guide to getting paid will help every business.”
Know your customer
- Always establish what legal entity the business is – individual, partnership, limited company.
- When dealing with individuals, consider checking their ID – ask to see a passport, or driving licence.
- Check the business’s solvency. For companies, check companies house online https://www.gov.uk/government/organisations/companies-house. For individuals, check the insolvency service register online at https://www.gov.uk/government/organisations/insolvency-service, which gives details of current bankruptcies and those that ended in the last three months.
- Ensure you obtain up to date contact information and check it out – check business websites, www.192.com to verify addresses, or visit the premises.
- Carry out a credit check with a credit reference agency.
- Take references from other clients of the business.
Agree payment terms
- Agree the amount to be paid for the service or product in advance.
- Agree when payment will be made. If you will need to buy additional items or spend money in order to fulfil the order, then consider asking for payment in advance.
Get your paperwork in order
- Always have a written agreement or contract in place including detailed payment provisions.
- Set out your own obligations and responsibilities clearly to avoid potential disputes.
- Always ensure you hand out detailed terms and conditions at the same time that the agreement is made and refer to them in the agreement do not rely on simply having them on the back of your invoice as this is usually ineffective.
- Consider a retention of title clause; this means that the goods remain yours until they are paid for.
Invoice promptly and regularly
- Smaller bills may get paid more quickly – so consider invoicing little and often.
- Regular invoicing is likely to enable queries to be dealt with at an early stage, before you run up a big bill, or are owed a large amount of money.
Have an effective credit control procedure
- Don’t be scared to chase! People expect to be reminded that payment is due.
- Implement a credit control procedure and stick to it – sending out statements and reminders and, where necessary, notification of legal action.
- Once your credit control procedure is exhausted, consider a solicitor’s letter – the threat of action is often enough to prompt payment.
Legal action
- Remember that interest can be claimed, in addition to the amount owed.
- A solicitor can guide you through court proceedings.
- There are several different enforcement methods that you can utilise to gain payment once you have a court judgment – bailiff/high court enforcement officer, attachment of earnings order, charging order over property, third party debt order.
- As an alternative to court action for a judgment, for undisputed debts, you can consider serving a statutory demand, which threatens a petition for winding up in the case of a company or a bankruptcy petition in the case of an individual.
Stephanie finishes: “Following these guidelines will help you achieve regular and prompt payments, but if a payment situation has deteriorated, we recommend you approach a solicitor sooner rather than later to resolve the situation quickly and effectively. Our experts at Tallents Solicitors are here to help you with any issues regarding your business. Just call one of our three offices to arrange a confidential appointment.”
