3 August 2001

Getting cash out of customers

Its one thing do the work

but quite another to get

paid for it. Suzie Horne

seeks advice on how to

handle bad payers

WHEN it comes to cash collection, a week spent off the tractor could be the most profitable use of time for many contractors, insists solicitor Robert Swift, head of farms department at Wilsons, Salisbury.

"Collecting cash may not be considered real work," he says. "But a few days concentrating on this usually produces an immediate cash boost. Over trading is a disease of everybody, not just contractors. Its very easy to do, because when youre busy, it feels as if things are going well. People often know how much they are owed, but they quite often do not know how old the debt is."

"The first task is to schedule unpaid invoices by age – overdue by less than three months and then three months to six months. If they are older than this they can be put on the critical pile," says Mr Swift. "In most cases, a telephone call or a visit will produce payment, because people are embarrassed into paying. If their response is that they are going to pay but cant pay right now, sort out a payment schedule and confirm it in writing."

"Get something out of them rather than nothing at your visit, for example, a part payment or the first instalment of a schedule," says Mr Swift. "Where there is no immediate prospect of payment then it may be possible to take security on the debt, or payment in kind."

"Where a payment is disputed because of a query over the quality of the work, it is also imperative that you tackle it, because its not going to go away or be paid without you doing so. Where you suspect that work is being disputed simply as a delaying tactic, then ask them to put it in writing. What you do not do is ignore it," he continues. "The last resort with difficult debtors is to litigate or simply write off the debt if there is no realistic prospect of recovering it. A solicitors letter will cost between £20 and £30, and often brings results."

"Suing for the debt will recover costs and interest too, but this route must be very carefully considered because of the cost which could be involved relative to the size of the debt and the financial position of the debtor," says Mr Swift.

"With margins so thin, few contractors have the luxury of choosing their customers carefully, but terms should be made clear at the outset," says Richard Crane of Deloitte & Touche, Cambridge.

"There is no prescription for 28 day payment – you could agree shorter terms, and a surcharge for late payment usually helps drive the message home," he says.

He points out the importance of getting the invoice out soon after the work is done, ideally within the same week. Doing it once a month could mean waiting two months for payment from the time the work is completed.

Mr Swift also suggests using a discount for early payment, but only if late payment is a general problem.

"If most are paying within 28 days, then dont use it," he says.

It is, however, important not to use this tactic selectively to encourage bad payers, because good customers will hear about it and wonder why they are not getting the same terms. The danger is that providing selective discounts for early payment could end up rewarding bad payers. &#42

Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses employing fewer than 50 people now have statutory backing to help them recover late payments.

Under the terms of this act, a payment is late if it is made after the last day of the credit period in the contract terms. Where no period is specified, then the act supplies a default period of 30 days after the delivery of the goods or services, or 30 days after the customer was notified by the supplier of the amount of the debt, whichever is the later.

The act also sets a default interest rate of 8% above base rate, but does not preclude other rates being agreed between the two parties to the contract. For a users guide to the act, see www.dti.org.uk, or contact your local Business Link.

Robert Swift, head of farms department at Wilts-based Wilsons solicitors. "In most cases a telephone call or a visit will produce results," he says.

Help available to recover payments

Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses employing fewer than 50 people now have statutory backing to help them recover late payments.

Under the terms of this act, a payment is late if it is made after the last day of the credit period in the contract terms. Where no period is specified, then the act supplies a default period of 30 days after the delivery of the goods or services, or 30 days after the customer was notified by the supplier of the amount of the debt, whichever is the later.

The act also sets a default interest rate of 8% above base rate, but does not preclude other rates being agreed between the two parties to the contract. For a users guide to the act, see www.dti.org.uk, or contact your local Business Link.