late payment of commercial debts

Before you even provide a service or deliver goods to a customer make them aware whether you offer credit terms and if so advise them what those credit terms are.

Larger businesses will have a credit application form which would include a "Terms and conditions" section which the customer needs to agree to and sign. Some businesses may also only offer credit subject to a successful credit check.

Smaller businesses could write their credit terms on a quotation that you give to the customer e.g." £ 2000 to fit new central heating system-payment due within 14 days of invoice date"

If the customer doesn't know when your invoices are due for payment then you can't blame them for paying you late.

The reality is that some customers will be perfectly aware what your payment terms are yet still ignore them. Making them aware beforehand what your payment terms are puts you in a stronger position when you have take further steps to recover your money as a lot of customers will use any excuse to pay late-YOU NEED TO ELIMINATE AS MANY EXCUSES AS POSSIBLE BEFORE THEY CAN EVEN FORM.

This may seem obvious to many but I know a lot of trades men who don't provide an invoice for work completed. Always, always, always produce an invoice to give to your customer.

The invoice should clearly state your address and the name of whom you want any cheques payable to.

If you're offering credit to the customer then ideally the invoice should also state how many days credit you are giving them to pay the invoice.

Use numbered invoices. You don't have to buy expensive stationery-Staples have a good choice of sequential numbered invoice books.

It should be worth pointing out that some customers genuinely forget to pay late-they're not all out to cheat you !

Ring them up on the due date or a few days after the due date if you don't want to appear too keen.

This is important. When you ring make sure you are speaking to the person who actually deals with the payments whether that's the head of the family or the relevant department within an organisation (commonly known as the "accounts payable department" or "purchase ledger department").

My own personal advice is that your first call should be a non-confrontational conversation. You could say, "hi, I'm ringing about invoice 41441 dated 21st February, any idea when this might be paid ?"

It's around this stage that the approach to collecting late payment comes to a fork in the road. How you play it depends on a variety of factors, how well do you know your customer, do you get any bad vibes from the customer when payment is mentioned, your own financial position etc.

Once you've mentioned payment to your customer one of three things will happen.

1/ They will either offer to pay you immediately (via credit card, cash etc)-if you desperately need the money from them and it's geographically possible then offer to collect the payment from them. You can pretend you're in the area anyway so it's no hardship for you to drop by or you could pretend it's an after sales visit to see if they're happy with the work.

I used to work for a small business where the owner was a notoriously bad payer but some of our suppliers soon cottoned on to the fact that the owner found it very difficult to give an excuse if asked for payment face to face.

2/ They will offer to pay at some date in the future e.g. "I'll put a cheque in the post a week on Monday" or "we only do cheques once a month so we'll put you on our cheque run". If they give you a specific payment date then diarise it (stick it in your mobile phone calendar if you like) and wait for the payment to arrive. When the date arrives and payment still hasn't turned up then ring them again and see what they say. If they give you a new payment date then remind them what they told you previously. When chasing late payment one of my GOLDEN RULES is to get the customer to be SPECIFIC with their answer. If they tell you that "payment will be sorted out shortly" then that isn't actually telling you anything ! Always ask for a payment date and confirm the amount to be paid (you'll be surprised how often you might be caught out by receiving a payment for less than you had expected).

3/ They won't offer you a payment date at all. They might tell you that the boss is on holiday or that he hasn't signed all the cheques yet-it could be a number of different reasons. Again, I urge you to get the customer to be SPECIFIC. If the boss is away ask them when is he/she returning to the office and then note that date down in your diary.

Sometimes they won't give you a reason at all and will just give you a vague reply such as "yeah, I'll sort it out for you". Once again get them to be SPECIFIC.

Generally, I allow the customer a lot of leeway during my first phone reminder for payment. Even if I know they're unlikely to follow through with their promise of payment I will give them the benefit of the doubt. I consider the first call to be a very gentle and subtle "shot across the bows" to let them know that I remember they owe me money and to try and smoke an excuse out of them as soon as possible.

Ok, by this time you have already contacted your customer to request payment from them and they would have given you an answer of some sort. Only you can decide how long to wait before making a second phone call to them. It also depends on what the customer told you the last time you spoke with them. If they told you a payment would be made in 7 days time then you could wait until 10 days have elapsed before ringing them back. When you make that second call I would then remind them of whatever was said during the first phone conversation and just tell them you're calling for an update (or words to that effect).

They will undoubtedly give an excuse of some sort as to why payment wasn't sent the first time round. I would still remain polite but ask them for a firm payment date. Make a written note of their reply and diarise a follow up on a date of your choosing (I normally allow a few days after their promise of payment date).

By now you will have contacted the customer at least twice and they should have given you some kind of answer regarding payment at least twice (even if it's an obvious excuse). At this point I would stop trying to contact them by phone and change to a more formal method of correspondence-recorded "signed for" delivery letter.

Send a letter to them (preferably on letter headed paper) with details of the overdue amount e.g.a list of the overdue invoices and make sure your letter is dated.

Give details of your attempts to contact the customer and the answers/promises you were given at those times.

Explain that regrettably you feel you are left with no further option but to pass the debt onto a debt recovery company (insert the name of a genuine debt company at this stage if you prefer).

You could also point out that any additional legal fees incurred by the debt recovery company will be charged to them. You could give them an ultimatum and say that if payment isn't made within x number of days then their account will be passed to a debt recovery firm or you could just state that you are doing this immediately-it's your choice.

If all else fails then you are left with two options-decide to write the debt off or take your customer to court.

Contrary to popular belief, you don't need a solicitor to do this for you, you can do it yourself.

If you are owed less than £ 5000 then this qualifies as a "small claims" and you can file a claim at your local county court. You can make a claim online at http://www.moneyclaim.co.uk or http://www.hmcourts-service.gov.uk.

There is a small fee which you will have to pay for your claim but this can be recovered if the court rules in your favour and the claimant pays. Bear in mind that there is a possibility that the court can rule in your favour and yet your customer may still not pay. In these cases the court will apply a "county court judgement" or "CCJ" against your customer. Although this still doesn't force them to pay it does affect their credit worthiness and rating.

For claims between £ 5000 and £ 25000 then you need to go through the county court.

For anything above £ 25000 then you need to go the to High Court.

You may still need to employ the services of a court Sheriff (similar to a bailiff) to recover your money. They will contact the customer on your behalf (for a fee) and request payment of the overdue debt as well as their own fees on top. If the Sheriff can gain access to the property and identify assets as belonging to your customer then the Sheriff has a legal right to seize these goods to sell on to repay your debt.

As every case is different it's impossible to recommend taking a particular route. We hope our guide has proved useful to you.