Terms and conditions
- Make sure that you have terms and conditions of business with your customers.
- Ensure that they are binding. They have to be agreed as part of the contractual process. If you enter into a contract to provide goods or services and only mention them after the goods are delivered and are printed on your invoice after delivery then they will be ineffective. This is because the contract will have already been concluded and your attempt to introduce your terms post the contract’s conclusion will be too late. A useful tip will be to ensure the terms are referred to in all correspondence including all contracts (prior to the contract’s conclusion) payment forms and delivery notes.
- Make sure that your T’s and C’s are up to date and are reviewed regularly. Some businesses think that investing in legal advice can be a bit expensive. However it will be money well spent as you will create a trading relationship and environment with certainty in the full knowledge that your terms will be legally binding and enforceable.
- Resist the temptation of copying and lifting terms and conditions from the internet. This can lead to unintended consequences and disastrous results. For example I have seen a Scottish company have an exclusive jurisdiction clause which required that all court actions be raised in England The result was that despite being based in Glasgow and having most of their clients in Scotland all court actions had to be raised in Manchester. The company only became aware of this once they had raised an action in Glasgow only to have it dismissed with court expenses being awarded against it.
Costs and interest and retention of title
- If you want to claim collection costs and interest for late payment of your invoices then you can incorporate this into your terms and conditions. If you do not do this but your customer is a business then you are still able to rely on the Late Payment of Commercial Debts (Interest) legislation. If you want to use it this Act it will still offer you good protection and an effective remedy.
- A retention of title clause means that a seller of goods will retain title to them after possession has been given to the buyer. The sale of goods legislation provides that property in the goods passes to the purchaser once they are delivered even although they may not have been paid for. A well-crafted retention of title clause may protect a seller in circumstances where goods have not been paid for in whole or in part even in circumstances where the purchaser becomes insolvent.
Know your customer
- Carry out identity checks to confirm that you customer is who they say they are.
- Set realistic credit limits. Remember that a sale is not a sale until the goods or services are paid for.
- Carry out credit checks by using a credit reference agency
- Help yourself – you are able to get free basic company information from the Company House website. The information includes the name of the company, its company number, its directors and a charges register.
- Are you able to establish whether your customer is in financial difficulty? Try to establish a positive personal relationship with them by phoning regularly to check the quality of your service and ask how business is for them.
- If they do have problems are you able to provide them with a solution and support? For example if they have temporary cash flow problems are you able to offer extended payment terms to tide them over?
A summary of information which you can get from a credit reference agency
- An individual’s credit history such as loans, credit cards, mortgages and other financial accounts.
- Business verification to confirm that a company is genuine, that it’s registered and its legal status which will include whether it is in liquidation or subject to striking off notices.
- A company’s credit score and suggested credit limits
- Financial performance to establish financial stability
- Verification of the identity of a company’s directors and shareholders
- Company ownership – understand the true ownership of a company and its ultimate beneficial owner
- Key risk indicators – establish whether any judgements are registered and whether there have been late or missed payments
- Bill your clients quickly. Don’t wait for a month to send your account. If you don’t ask to be paid you won’t get paid. Have you considered emailing your invoice and following up this up with a phone call to confirm that the correct person has received this?
- Make sure your bills are accurate. If they contain mistakes this will be an easy excuse why payment is being delayed.
- If your customer does question your account and raises queries ensure that you have procedures in place to address such concerns timeously.
- Do have a customer complaints procedure? If you do then follow it and ensure that you engage with your customer throughout the process. This way they won’t feel ignored. They will feel part of the procedure and more valued. As such it is likely you will be paid quickly once any issues are resolved.
- Have a collections policy in place and try to stick with it. For example on day 7 after the invoice has been sent you may write to the customer requesting payment. Should there be no payment your policy may provide for more severe letters to be sent at defined times. Vary these letters over time. What you don’t want to do is to send out 3 or 4 letters which are the same and which you have used for ages. If you do this your customer will know when letter 4 should arrive and only pay once this letter is received.
- Ensure that your organisation has sufficient resources to operate the policy.
- Be firm, polite and fair with your customer.
- Consider phoning late payers. This will introduce the human touch and show that you care about them as well as being serious about being paid
- Remember that there should be exceptions to any credit policy. So, for example, you may want to treat your best customers who may pay a little late differently and be more lenient with them in contrast to “one off” delinquent customers.
- Keep notes of all collection calls made.
- If you do receive an offer to pay the accounts ensure that a defined date has been agreed as opposed to settling an account “by the end of the month”.
- If the account is still outstanding after the agreed date then escalate this to the next stage and advise your customer that you are doing this.
Referring to third parties for collection
- Once you have exhausted your own internal process then refer the debt to a third party. This may be a firm of debt collection solicitors.
- Ensure that you send all paperwork to them along with details of calls and contact made. The more information the lawyers have the more likely they will be successful in recovering your account.
- Before court action is taken your lawyer should check whether your customer is still solvent.
- If your customer is insolvent then they will not be worth suing but if you have an effective retention of title clause it may be possible for you to recover the goods from them.
- Above all don’t delay in passing the debt to your lawyer. The longer you delay the less likely you’ll have in getting paid.
Please contact Yuill + Kyle if you require any advice in relation to the above.