Top tips on getting paid
November 10, 2015
Luisa Grey, a Director at Eazipay Ltd, one of the UK’s largest and fastest growing Direct Debit bureaux, shares her views and expertise on how to make debt collection just that little bit easier.
If you could create your perfect Christmas list, what would it look like? An end to famine and war? A solution to climate change? Cadbury's Crème Eggs being available all year round?
For many small businesses, one of the things they'd like Santa to stuff into his sack (although obviously not on top of the Crème Eggs as they might get squashed) would be an end to the chore of debt collecting.
Debt collecting is clearly important, particularly for small and medium sized businesses for which one non-payment by a large customer can spell danger but it is, frankly, a major pain. It takes up hours of time which could be spent much more productively and can also be very stressful.
However, October and November are busy times for Santa, what with making presents and training up new elves. And he's feeling the pressure more than ever this year now that Argos has introduced a same day delivery service. So what can you do?
Like most things that are potentially damaging – wearing a zebra costume in a lion enclosure, going water skiing in high heels, eating honey from a comb without checking the bees have gone out for the day – the best way to avoid the damage is to avoid the activity in the first place. That way you stand a much better chance of not being eaten, drowned, or indeed stung. (Did you see what I did there?).
It's the same with debt collecting. Having no debts will make both you and your business a good deal happier and healthier, which is why it's critical that before you take on a new customer, you check them out to ensure they are at least credit worthy.
And if by some chance you know others who supply the same customer, a few discreet enquiries as to how fast they are at paying bills wouldn't go amiss.
Naturally this is not infallible. Companies that look solid one day can be gone the next, but you owe it to yourself and your employees to at least try and back a winner, rather than a three legged nag with a heart murmur.
Having done the checks, the other way you can protect yourself is by having a water tight contract. Get legal advice if necessary, but at the very least you need to ensure your terms are clear, any late payment penalties spelled out, when and how the customer should report faulty goods and/or workmanship and so on. In other words, give your customer less wriggle room than a worm in a vice.
Another really good option is to use pro-forma invoices. They are standard practice, perfectly acceptable and some companies simply won’t work at all without being paid up front. Others will not supply any goods unless a Direct Debit is signed and payment terms agreed.
Like many things prevention is better than cure and an open discussion about paying bills is best before you are owed money. If the prospective customer is difficult or refuses to talk on the subject alarm bells should go off and you should quickly decide if you really want them as a customer.
Even the best checks and the best contracts are not infallible, however, and there will be times when you need to chase a debt. But how?
As a starting point, stay calm. OK, you can have a good swear first if you like, but once you've exhausted your repertoire, you need to stay professional at all times. The worst payer in the world never coughed up more quickly because an irate supplier questioned their parentage.
You need a plan. It needs to be logical and the steps should be reasonable. When you first chase a late invoice, for example, do it with a polite reminder letter or email rather than sending round your over excitable nephew with a sledgehammer.
The plan needs to be understood by everyone involved in the process and should be in place before it's needed. That way no one is likely to go off at the deep end at the first sign of trouble.
Action the plan! As a nation we get terribly embarrassed by money, particularly when it comes to asking for it (it's one of the many reasons Oliver Twist isn't set in a bank) and it's all too easy to put off making a payment request. Don't! If you are owed money and it's late you have a perfect right to chase it.
Keep a record of when you took each step, what the response was and what if anything was promised by the debtor. It makes you sound professional the next time you chase and it's handy if you do end up having to go to court.
Find the right contact and talk to them. If the straightforward requests aren't getting you anywhere, try and find out why and tackle the issue if you can.
Get a payment date from them and don't be frightened to suggest alternative payment plans if they seem in genuine financial difficulty.
Keep chasing. This may require a degree of tenacity but a debt collection strategy that ends half way through with the action of 'give up' is not much use to anyone.
What are you going to do about future sales? It's only natural to want to give big customers more rope than small ones, but if they drag you over the edge with them nobody wins.
If all else fails, you may have to sue. It's not a decision to be made lightly as you're effectively losing a customer but sometimes, it’s the only viable option left to take.
Always be clear about your intentions before you do go down the judicial route, and check whether the amount and costs involved, and the chances of winning, make it worthwhile.
Finally, remember that unlike in the movies, the good guys don't always win. Sometimes you have to take the loss on the chin and put it down to experience. Crème Egg, anyone?
Luisa Grey is a director of Eazipay Ltd, the UK’s largest and fastest growing Direct Debit processing company. Eazipay provides regular Direct Debit collection and processing services to thousands of SMEs and corporate organisations in a wide range of market sectors throughout the UK, Europe and beyond. For more information visit www.eazipay.co.uk
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