For any business these days, it's a familiar scenario: You win the business, submit the invoice, wait 30 days and then - nothing. Your staff and creditors expect to get paid on time, so is there anything you can do? Here’s a methodology that may help you speed up delivery of payment of your invoices, and avoid hassle with your clients.
Define Your TermsDefine your terms and conditions It’s really important to define your terms and conditions for payment on your invoice. The wording should state your payment terms and also define a deadline by which your client has to put, in writing, any queries they have about your invoice. This will focus the client’s mind and put you in good stead if your client later decides to dispute the invoice. The terms should also include the rate of interest you will charge for overdue payments. Make your terms the boldest item on your invoice. It is also a good idea to include the actual due date.
Credit controlAfter clearly stating your terms of business, your first step after 30 days have lapsed from the date of your invoice should be to issue a statement. The statement should list all outstanding invoices by invoice number and amount, and indicate the amount of interest accrued. It should also be addressed to the accounts department of your client, (as well as the individual who ordered your service). Hopefully this will highlight any problems - such as the invoice never having made it to accounts (an all to common excuse) - and also helps to avoid it being (too) personal.
Most accounts packages, such as Mamut or Sage, make it quick and easy for you to issue statements. If you make a point of setting a regular date in your diary, it need take only a few minutes to print off a few sheets, stick them in envelopes and put them in the post. Email as well but a paper record is important. It's up to you how long you wait before the next step. But if you have sent a statement every fortnight for another 30 days and still have not received payment, it may be time to get on the telephone. There are a number of responses you might get:
1. Your invoice has not been received. Offer to fax them a copy or personally address one in the post by recorded delivery, on condition that payment is immediate.
2. Your invoice has not been received and it needs to be authorised by the person or department who commissioned you first. In this case, you may have to go back to your main contact and find out why the invoice has not been authorised and passed on. Point out also that accounts should to do the chasing, otherwise their organisation is likely to incur additional costs.
3. Your invoice has been processed and will be paid on such and such a date. Assure them that they will be held to their promise, diarise the date and call again if the obligation is not met.
4. It's company policy not to pay invoices for 60 etc days. Politely point out that the law says 30 days and you will be abiding by the law.
5. The cheque is in the post. Ask for the cheque details. Also check to see where it was posted to, in case it has been sent to the wrong address. If this information is not forthcoming, something is probably amiss.
6. The person who signs the cheques is away. Ask them in that case what provision has been made to sign salary cheques and other important bills such as utilities. If these payments can be authorised, why not yours? If the above steps still result in a failure to pay, it's time to get serious.
Legal actionThe ultimate sanction for a bad debt is legal action. This need not be as daunting as it sounds. A good solution for initiating a legal process is……. It's cheap, easy and very effective. There are three stages:
1. Letter(s) before action: The first letter should remind the customer that the debt is overdue and payment is required immediately. The second letter should seek to achieve two purposes. Firstly, to persuade the customer to make payment in order to avoid interest penalties or more serious legal action. Also, it outlines that if Court action is required the company will be entitled, under the rules of the Court, to claim Court fees from the customer. This letter must therefore give clear details of the debt involved and give a fixed date after which proceedings will be issued in the Court.
2. Legal Action: This is usually the last resort, and action can be taken through the appropriate Court, depending on the value of the debt. Generally the threat is enough, and even the most obstinate debtor will often pay up to avoid actually going to Court. The company needs a policy set down about how far legal action will be taken. Threatening to take or taking legal action does not improve goodwill and can be costly, sometimes costing more than it is worth. If action is taken, rates should be negotiated with a solicitor and it is advisable to use the services of a solicitor who specialises in debt collection.
3. Garnishee: In more serious outstanding debts a Garnishee Order can be obtained. This is an effective legal enforcement option, although this is dependent on the creditor having good knowledge on any monies due, but not yet paid, to the debtor. In such circumstances, the creditor can apply to Court for a Garnishee Order, directing that such monies are paid by the third party directly to the creditor.
Timing is important so that the third parties are advised of the Garnishee Order before the monies are paid to the debtor. If it does go to court action, it's almost certain to be settled once judgment has been made, providing your client is still trading and solvent, and as far as you can determine, running a legitimate business. You will have nothing extra to pay if it is settled, but if a defense is entered by the debtor and you have to go on to court, there is the potential that you might have to bear the court costs if you lose. You will also have to pay the costs of the initial court action if you choose not to proceed with a hearing.
In Front of a JudgeIf the dispute goes to a hearing, both parties will be given the chance to make their cases in a fairly informal way in front of a judge. At this stage, you can also put in a claim for reasonable expenses for attending court and, if you win, the judge will include these with all court costs and interest accrued in his judgment against the debtor.
If you lose, you will have to bear the court costs plus the expenses of your debtor. In your address to the judge, you should make your case as simply as possible, restricting your speech to a simple retelling of chronological events, supporting your case with written evidence such as invoices etc. If you have kept a log of all your dealings with your client as suggested earlier, this will be a simple matter. Avoid hearsay evidence, such as the relating of telephone conversations etc, and stick to the hard facts relating to your sale to the client and the key events of your attempts to get paid.
A defence is rare and usually only happens either because the client is unaware of the debt, or disputes it. The former should be unlikely if you have followed normal invoicing and credit control procedures. The latter can be a lot trickier, but if a client has not made his complaints clear to you, in writing, within the timescale you defined on your invoice, they will be on less firm ground.
And it will certainly not look good to a judge if the debtor only disputes the debt in writing at, say, the stage where judgment has been issued after the initial court hearing. Finally, the worst case scenario is if your client has gone into liquidation. Make sure the liquidator or administrator has the full details of your debt and that they acknowledge your claim as valid.