[back]Getting Paid - Part 4
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The Last Straw
No customer's business is worth having if it is never paid for, or if you have to spend precious resources chasing payment for what you were contractually due long after the event.
If you have read Parts 1, 2 and 3 of this series, hopefully you will only be faced with bad or slow debts very rarely. But you can do more to protect your precious cash.
Avoid confusion
One of the most frequent causes for a delay in payment can be due to confused or even unrelated issues. The most frequent of these seems to surround multiple invoices over a period of time, where even only one invoice perhaps is subject to a query, but it seemingly affects payments of all outstanding debts.
Many of these concerns may well belong to the 'fob-off' category mentioned in Part 3 of this series. They might also include doubt about an invoice where delivery-notes are in question, where there is a one-off quality complaint, or an agreed credit note not yet processed.
You can help yourself considerably by making sure your Terms and Conditions exclude all such matters in the payment of other invoices outstanding, which is partly why getting sound legal advice on your terms of trade (see Part 1) can be so important.
Just occasionally, confusion can also arise for other reasons, such as where your customer is taken over or otherwise restructures itself. So stay alive to all such notifications and respond quickly?
Next steps
The first response to any agreed bad debt, after attending to all the previous tips, must be to send a formal 'solicitor's letter', often know as a 'red letter'. If you are nervous about your continuing client relationships and the situation is clouded, you could perhaps first offer only a prior warning that you may need to take legal advice to pursue a bad debt, but don't be 'precious' about this?
However, if you have attended diligently to all the contractual details and have engaged your defaulting customers in all of the previous tips, you may be best advised to go straight to the 'red letter' – a threat to take the defaulter through due legal process to recover your debt. Often, that may be all that is needed.
But do get qualified legal advice wherever in doubt? Every case may be different. And do keep a formal record of all transactions between you from enquiry through to offer, order and all subsequent discussions, just in case you have to 'get legal'?
Spotting the bad 'uns?
At this stage, we need to recognise that some great customers are just inveterate bad payers. You probably know who they are, and so will they. Slow payments, even no payment sometimes, may even be part of their business model? It happens.
How to spot them?
If you have followed all of these tips, including seeking credit references and setting realistic credit limits, you will know them well. Then it is entirely your choice whether to continuing your supply to them or not.
But incidental indicators you might also watch out for could include:
- consistently poor payment records;
- implausible reasons for delayed payment;
- inability to get answers;
- poor trading results;
- speculative ventures they not be able to afford;
- 'irresponsible' spending by senior staff as you see it
(such as unnecessarily glamorous company cars?) or unusual share disposals by the owners;
- unusually high staff turn-over;
- apparent detachment or disaffection from the company by your most senior contacts in particular,
but also perhaps your more junior contacts?
What then?
Never send good money after bad!
Some business people just have an intuitive eye or ear for bad deals, some just wait and hope, and perhaps the wisest may even cast around further to find out what is happening.
But don't just 'hope' that you will be paid? Follow the next tip!
Worst case – still no payment?
First, stop all further supplies. They probably won't like it, you may certainly not like it either, but it has to be done. Remember: no sale is a sale until it is paid for!
Tell the offending client what is required for you to continue supply and be sure to tell them they are in beach of their contract. (What 'contract'? See Part 1 of this article.)
Then gather together all related documents as evidence and pass them to your lawyers.
With a bit of luck, this may only be hiccup in your continuing relationship with this customer, and may it then go from strength to strength. But don't be beguiled by fond words of their future intentions?
Defaulting customers can sometimes become some of your best business partners, but they may also offer some very hard business lessons, expensively earned.
I do hope all the tips in this series of 4 articles may promote the former!
If you missed parts 1, 2 and 3, the links are here:
GETTING PAID - PART 1 >>
GETTING PAID - PART 2 >>
GETTING PAID - PART 3 >>
By Jeremy Thorn
jeremy@jeremythorn.co.uk
www.jeremythorn.co.uk
Jeremy Thorn is a regular speaker to Academy for Chief Executives groups, a past CEO in his own right (of both a large quoted engineering company and a successful management consultancy business which he first established with two pals), a qualified Executive Leadership Coach and Non-Executive Director of several fast-growing businesses. He is also the author of several prize-winning business books and a frequent speaker on management topics internationally.