By Jane Rees, Head of Debt Recovery Harding Evans Solicitors
As the recession begins to bite, risks to cash flow increase and, inevitably, smaller businesses tend to be on the receiving end.
Already UK Chambers of Commerce are complaining that larger enterprises have begun to delay payments or unilaterally change credit terms.
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Chasing large and highly-valued customers on overdue invoices is uncomfortable at the best of times. Some suppliers fear that rocking the boat will sour the relationship while others don't chase because they feel confident the big customer will always pay up in the end.
Both positions are risky, particularly in the current economic climate, when all businesses should be tightening their credit control.
The most vulnerable are those who have been lax in chasing debt previously.
It is all too common for small businesses supplying large customers - or indeed any customers - to issue invoices with 30-day payment terms and allow 60 days to pass before chasing payment.
Unfortunately that sends the wrong message to customers who, now wrestling with the economic slowdown, are even more likely to string suppliers along and force them to seek expensive overdrafts in order to keep going. Overdrafts may of course become harder to secure in current circumstances.
It is essential that those who have been laid back in the past make it known, diplomatically but firmly, that they are changing the rules of engagement.
In my experience communication is key. Rather than resorting to final warnings and threatening letters, it is better to lift the telephone to the customer contact and explain how you wish to handle credit control in future.
It is also important for all businesses to bear in mind the fact that they can claim interest at the rate of eight per cent above base rate together with compensation in accordance with the Late Payment of Commercial Debts (Interest) Act 1998 from any customer in a commercial contract who has failed to pay an invoice.
This may not secure on-time payment every time but it is likely to have a powerful effect and push the supplier further up the priority list. At the very least this tactic will have prepared the ground for a tougher approach to invoice chasing in future.
Small businesses should not feel inhibited about this. Keeping on top of credit control is good business practice and customers are more likely to respect than resent those who have this discipline.
In the current climate developing a stringent credit control reputation could mean the difference between survival and failure.
For more information on recovering debt and protecting cash flow contact Harding Evans Solicitors on 01633 244 233.
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