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Service: Credit Contol
 
Date: 08/11/2012
 
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ICSM’s Guide to Getting Paid
Prevention is better than Cure!



When do you start chasing a late payment? When the work has been supplied? When the payment terms have passed or when your cash flow starts drying up? Ian Carrotte, proprietor of ICSM, the subscriber-based credit information specialist dedicated to the UK printing industry, says too many businesses believe invoice collection should begin when they are overdue. However, when some customers respond only to final demands the time between job completion and payment collection can stretch cash flow to breaking point.

Too many operations delay collection for as long as they can because they are concerned that in asking customers to pay, they will drive away future business. Yes, it is possible to cause offence in the way payment is requested, but it is actually just as possible to enhance the relationship if you are professional in the way you go about it. With long-standing customers responsible for 80% of bad debt, it is clearly defined strong working relationships that are the best cornerstone for the financial health of your business. If this is solid then the rest will fall into place.


Here are our essential guidelines to establishing the firm foundations for success:

  1. Decide on payment terms with clearly defined Terms and Conditions and stick to them. As long as they are in place and communicated to your customers, they’ll be expecting you to follow up on any outstanding invoices. If you are unsure what terms you should use, don’t guess – ask an expert.

  2. All new customers should sign a Credit Account Application Form. The signatory should be ‘a duly authorised person’ who should sign below a statement requesting explicit acceptance of the Terms, with particular reference to prompt payment. Tip: Any prospective customer who refuses to sign such an undertaking could be giving early warning of his intention to extend credit – or maybe not pay at all!

  3. Check out the new customer with a reputable Credit Reference Agency – and set your larger customers up for monitoring so that any abnormal activity is spotted at the earliest point, possibly avoiding a bad debt. Tip: If an actual or potential problem arises, talk to your customer about how it affects your trading relationship.

  4. Every priced document (e.g. price lists, quotations, etc) should contain a direct reference to ‘prices subject to payment within our Terms’.

  5. Don’t be afraid to reference prompt payment at the start of every new job or contract. At this point any customer-requested deviation from your standard Terms should be confirmed in writing before work starts.

  6. As corny as it sounds, we compare the credit control model to a house of cards; if one card falls everything can collapse. It should be a strict procedure. It is good business practice to adjust your application for credit each year and send out a new copy to all of your active customers to sign, ensuring that you always have an up to date agreement signed.

  7. Avoid being subject to the buyers Terms as printed on any written order, by sending an Order Acceptance ‘subject to your Terms of Sale’. The last document that changes hands before performance of the contract becomes the contract document.

  8. If you are sending out a large invoice (NB large to you or to your customer) telephone them shortly afterwards to confirm receipt and acceptance of the invoice to highlight any problems early on. If there are no problems you can confirm the payment date and their intention to honour their agreement. Tip: Telephone such customers shortly before the payment is due and confirm again that it is being processed. If a query or dispute is raised, deal with it promptly and ensure that the customer accepts your response. Until he does, the query remains a potential block to payment.

  9. If an account does go overdue, ring the customer immediately. ‘We can’t trace your payment, can you confirm it has been sent’ is less confrontational than ‘your account is overdue’ but still requires a specific answer.

  10. Take action. If your best efforts to obtain payment produce no results (and two broken promises to pay is a good indicator) consider what you need to do to protect your investment in that contract. Keep in context the fear of upsetting your defaulting customer. The customer agreed to pay you at a given point, you have completed the work to specification and met your contractual obligations. The customer must now do the same and pay the invoice. When the terms, as detailed on your invoice are exceeded, send an account overdue letter. Seven-days later send a final demand and seven days later initiate full recovery. Maintain constant communication in between these steps.

Unfortunately, completing high-quality work that meets the customer’s requirements is only half the job. Effective collection of timely payments is vital, no matter how large or small the customer. Ultimately your responsibility is to protect your business. The consequence of not acting for fear of losing your customers’ goodwill could force closure of your business then any goodwill will be worthless. It is how you do this that can make all the difference. Consider your own reactions when suppliers chase you for overdue accounts. If they are rude or offensive you might seek to take your business elsewhere but, if their approach is at all professional, your main reaction may well be ‘What can I do to pay that?’


Having correct terms from the beginning and sticking to them puts you on the front foot. Knowing your customer is also essential, helping you to realise what is good grace and when on the odd occasion, giving an inch will gain a mile.


ICSM is currently recovering debts on behalf of clients, that became overdue six months ago and more. We believe anything beyond 30 days overdue is too late, it can be recoverable, but it will prove extremely difficult and potentially expensive to recover.. Wherever possible encourage your customers to move to a BACS or Internet payment system.


Using third parties, such as ICSM, to chase debts will almost always result in faster returns. Your debtor is more likely to recognise and respect that it is your company’s professional procedure and pay the money owed.


For more information or if you have any questions please contact ICSM.


Christopher Moore

Marketing Manager | ICSM Credit


christopher.moore@icsmcredit.com

01454 322234



Tel 0844 854 1850 ___ Fax 01454 318 517 ___ Address ICSM, 51 Broad Street, Chipping Sodbury, Bristol, BS37 6AD
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