Cashflow is king

Managing cash flow effectively is essential for small businesses looking to stay afloat, grow, and remain profitable. Deborah Liffchak, Legal Executive in our Commercial Recoveries team, shares practical ways to encourage prompt payments and reduce financial strain.

With a six-year limit to recover debts, receiving prompt payment with minimal delays is essential. So, if you’re a small business owner, where should you focus your efforts?

Do your homework

Before starting any work, make sure you understand your audience and conduct due diligence, such as credit checks, to ensure prospective customers are financially sound. This helps identify potential defaulters early and establish firm payment terms.

Make terms and conditions clear

It’s crucial to have a robust payment and credit control policy within your terms and conditions. This helps ensure transparency about consequences for payment defaults.

From the outset, you should inform prospective customers of payment terms and late payment consequences, including relevant clauses in their terms and conditions, such as:

1. A higher interest rate should be charged from the due date to the payment date if the invoice
   remains unpaid, and may be set at a specified rate above the Bank of England base rate; and
2. If the customer is a company, the business is entitled to charge a late payment fee of £40 to £100
   per invoice, depending on the debt size, under the Late Payment of Commercial Debts Regulations
   2013.

These types of clauses are often used in contracts to make it easier to pursue payment for goods and services, to encourage businesses to pay on time, as well as compensating you for the cost of late payment.

Communicate – and offer payment options

If an invoice remains unpaid, you should contact the customer to remind them of payment terms and resolve any issues. Their response can help identify reasons for payment delays, such as rising costs or fuel shortages.

Calling customers can usually resolve outstanding accounts, as they often simply want to be heard. This is also an opportunity to offer alternative payment options or incentives, like payment plans or lump sum settlements, to encourage payment.

If, at the end of this process, your invoices remain unpaid, you should consider involving a law firm to promptly initiate debt collection through letters before action and, if needed, pursue court action to recover the outstanding amounts.

For any further information or advice contact Deborah Liffchak on 01494 932619 or email deborah.liffchak@blasermills.co.uk.