Lincoln Lawyer: You did the work, now get paid

Many people are starting their own enterprise, even in these difficult economic times. And Lincoln is the UK’s fastest growing city for new businesses. You have a skill, a product or an idea. But how do you convert a full order book into cash? BBC Dragons Den star Theo Paphitis summarised the issue as “profit is sanity; turnover is vanity”.

Credit control is the process of controlling payments coming into your business. Without it you have serious cash-flow problems, have to raise prices and become less competitive. Your business could fail.

  • When does credit control start? Your customer has to know your credit terms from DAY ONE. The best way to do this is by presenting a set of terms and conditions of business prepared by a lawyer who knows you and your business. This will inform your customers, for example, how and when to pay and the consequences of not paying, such as the interest you will levy on late payments.
  • Know your customer: Sounds obvious but it would not be the first time I have been instructed to collect a substantial debt based on a scrap of paper to the effect that “Big Rob” from the warehouse rang through an order for delivery to a site and he thought the home-owner would pay. If not, the builder. Maybe! If you are dealing B2B find out if it is an individual, partnership or company. Don’t be afraid to ask. Check them out on the internet. Try Companies House webcheck facility if you are dealing with a limited company.
  • Time limits: Adapt these to your type of business.
  • 24 hours after you have supplied the goods or service, ring to check your customer is satisfied;
  • 48-72 hours later, issue your invoice;
  • 24 hours later ring to check the invoice has been received and is being processed for payment;
  • 30 days after invoice start the letters: the first gives 14 days and the second gives 7 days. Politely but firmly asking for payment. The second letter escalates the urgency by referring to legal action. Now the invoice moves from what I call “pay when chased” to “pay when threatened”. There is no third letter;
  • At 60 days legal action is probably the only way forward now. Don’t leave it any longer.
  • Keep in touch: If your customer promises to pay by a certain date, write to them to confirm this; if the date passes without payment being received then ring them up straight away to find out what is going on. NEVER put this off.
  • Possible solutions: Offer a small discount for early payment. Agree instalments. Do your terms and conditions allow you to take back any oods not paid for?
  • The old excuses and what to say:
  1. I seem to have lost your invoice: Ask if that is the only reason for non-payment? If not then it is a delaying tactic.
  2. The cheque is in the post: Ask for details of the date of the cheque, its number and date of posting? If they cannot answer then it’s a lie.
  3. The computer is down: Who is fixing it and when? How are the wages going to be paid?
  4. We are waiting for a big customer to pay us and then we can pay you: Ask for the name of that big customer? If the money is definitely coming in then why can’t they get a bank loan on the strength of that certainty in order to pay you now?
  • Don’t overdo it: Section 40 of the Administration of Justice Act 1970 makes it an offence to harass a debtor “so as to cause alarm, distress or humiliation.”
  • The ultimate credit control tool: Not sending round your mate who is built like the proverbial brick out-house (see “Don’t overdo it” above). The ultimate form of credit control is full payment, up-front; cash. If you can get it!