Knowing who you should and shouldn’t provide credit facilities to should be a simple task; however we regularly come across Credit Controllers who hold insufficient information relating to their customer prior to providing them with a credit account, thus making recoverability on non-payment very difficult.
Offering a credit facility to a customer because he or she is a known friend does not guarantee you will be paid for the goods or services you have provided.
Relevant information is your weapon against unpaid invoices.
Your first port of call, prior to opening any credit account should be to establish as much information about your customer and their business situation; this is one of the most important tasks a Credit Controller performs.
If you are dealing with a company, then Companies House has a wealth of free information, including Director’s names, addresses, company assets, company accounts and much more.
If you are dealing with a sole trader, credit references can be carried out for as little as £5.00 and will provide you with an insight into your customer’s ability and willingness to repay. You can also request credit references from your customers’ past suppliers as well as obtaining recent business bank statements to provide you with an indication of how your customer manages their finances.
These are all simple, easy and cost effective ways to protect your business against bad debt.
What else is important? A Directors Guarantee… why?
A large percentage of newly incorporated limited companies cease trading within 18 months of incorporation, usually to make maximum profit and escape their liabilities, thus leaving many creditors unpaid. By obtaining a Director’s Guarantee the Director of the limited company will be personally liable for the debt.
Do you have the correct payment terms in place and what conditions will help to protect your business?
Full payment terms and conditions should be printed on the reverse side of your invoice. These should include when payment is due, the consequences of late payment, any interest implications for late payments, a Retention of Title clause, a Directors Guarantee clause and any other clauses that are relevant to your individual business.
All of these procedures will maximise your chance of recovering unpaid invoices.
At David Allen we offer a FREE credit control consultation and credit control information pack which will ensure your business is fully prepared for debt recovery. To arrange your review please give us a call on 01228 713070.