Early signs that your customer can’t settle your invoice
Published: 6 October 2017
Good cash flow is the life blood of any business so it’s essential to monitor overdue invoices and act quickly to ensure payment.
Failure to act promptly could mean your firm incurs damaging
losses if a defaulting customer becomes insolvent and can’t afford to pay you.
There are several early signs that a customer may be
struggling financially. Late payment of invoices is an obvious indicator but so
is erratic or partial payments. For example, when a firm gets in difficulties
it may settle only part of an invoice with a promise to pay the balance the
following week or month.
If a firm has several invoices from a supplier, it may pay
the smaller bills before the larger ones even if the larger ones are the most
Delaying tactics also come into play. A firm in difficulty
may try to buy time by disputing an invoice and asking for more details about
what was supplied. Sometimes they will claim they never received the invoice
and ask for a copy to be sent. They may then treat it as a new invoice that doesn’t
have to be paid for another 30 days or whatever your standard terms may be.
The government says that delaying tactics like this mean
that SMEs are owed £26billion in overdue invoices.
According to a survey carried out by the Forum of Private
Businesses, late payments are more of a problem than poor sales, restricted
bank lending or complying with business regulations.
Many firms are reluctant to take action to enforce payment
because they fear offending the customer and losing repeat business.
There may be genuine reasons for non-payment, of course, and
firms may have to be given a little leeway. However, some firms exploit the
fact that you don’t want to jeopardise your relationship with them and they
ignore your polite requests for payment. It is only when you take legal action
that they finally take you seriously.
A simple letter written in legal terms outlining the
consequences of not settling is usually enough to secure payment. The realisation that you now mean business means
most firms will settle very quickly.
who still refuse to budge there are several other options available to get them
to pay. In fact, firms can turn credit control into a profit-making operation
by recovering unpaid money in a way that earns more than enough to cover the
cost of pursuing bad payers.
possible because businesses are entitled to levy a statutory late payment fee
of between £40 and £100 depending on the size of the debt and also charge
punitive interest at 8% above base rate.
doesn’t make the debtor pay, it may be necessary to issue a ‘court order for
questioning’ against the company secretary. This is usually enough to prompt
even the most stubborn late payers into action but for those who still refuse
to pay, there are other legal avenues available.
shouldn’t be afraid to explore these options. While it may be important to
maintain a good relationship with customers, there’s no point in doing business
with them if they don’t pay their bills.
Please contact Matthew Sigsworth in our Dispute Resolution Team if you would like more information about the issues raised in this article or any aspect of debt collection and credit control.