Last week I wrote a blog with a checklist to business owners to consider as a broad strategy on How to handle late and bad payers. The reality is that most small businesses will come across a late or a bad payer at some stage, even if you did everything right to ensure that you get paid on time. There are a variety of reasons why this might happen, and probably the most common example is where your supplier is really struggling financially. You know you have options in chasing the debt but you realise that you have to act carefully, as you don’t want to ruin that relationship by being too aggressive or threatening towards your customer.
So, what should you do when someone pays you late?
1. Keep up your communication with the customer and keep it friendly but firm;
2. Have a clear policy and process for handling late payments – to include the prompt sending of reminder letters on overdue accounts;
3. Don’t delay if your reminder calls and/or letters fail to get the right response. Do be prepared to pick up the phone;
4. If any disagreements arise consider using alternative methods of dispute resolution for example mediation or arbitration;
5. Add late payment charges and interest on business-to-business debt and keep a proper account of these charges;
6. Make sure that late payments don’t turn into bad debts (never getting paid). For example don’t continue to supply goods or services if payments are not being made – put a halt on things fast (always make sure you follow your contract terms on this) and
7. If all else fails, send what’s called a‘ letter before action’ – essentially a letter pointing out that if payment is not made immediately, you will have no choice but to take legal action. Weigh up taking legal advice and consider whether you’re prepared to go to court.
I know it’s sometimes easier said than done but staying professional and having a strategy when chasing debt doesn’t necessarily guarantee you a happy ending with a speedy payment, but it does give you a focused approach and it may well preserve that all important client relationship and your business reputation.
At Markel Law we regularly comment on SME related matters.
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If you haven’t already agreed when the money will be paid, the law says the payment is late after 30 days for public authorities and business transactions after either: the customer gets the invoice you deliver the goods or provide the service (if this is later) You can agree a longer period for payments from one business to another - but if it’s longer than 60 days it must be fair to both businesses.