How to improve payment performance
For many, chasing their customers for payment is at best a necessary evil. In order to minimise the need to do so, we provide some tips on improving payment performance.
When should you chase payment?
In order to successfully recover payment it is essential to gather information about your customer before you carry out any work for them. You should be able to identify your customer’s full legal entity, their company registration number and their contact details, including the name of the person that you should communicate with for invoicing purposes and to deal with queries quickly.
At this stage you should also carry out due diligence. There are various online tools that can provide you with your customer’s credit history and confirm that the details they have given you are correct. This should highlight potential non-payers/ late payers at an early stage.
After carrying out due diligence and providing goods and/or services to your customer you should make contact with them as soon as you have sent your first invoice. This gives you the opportunity to introduce yourself if you have not already done so, double-check that the invoice has been received, and find out if there are any points of dispute. You should also clarify the payment date (usually 14 days or 30 days from the date of the invoice depending on your terms and conditions). Setting up clear payment procedures prior to receiving payment of your first invoice lets your customer know that you are on the ball with regards to payment performance. It also helps you build on the relationship with your customer which should ensure disputes are kept to a minimum in the future.
What about poorly performing existing customers?
Sometimes poor payment practices can arise after business has already begun, and it may seem harder to demand payment from long term clients that you have known for many years. In these circumstances, it is essential your terms and conditions are up to date and are appropriate for your business needs. Ideally, your terms and conditions should protect you from poor payment practices. If you want your customer to be bound by your terms and conditions it is necessary to demonstrate their acceptance of them. Ideally you should be able to demonstrate their written acceptance of your terms and conditions, although evidence of verbal acceptance or acceptance by conduct will also suffice. Evidence of their acceptance of your terms and conditions will provide you with leverage should poor payment practices come into play. For example, your terms and conditions should contain a clause allowing you to withhold goods and services from your customer until payment is received. This is known as a credit hold clause and can be effectively used to put pressure on the defaulting customer to bring their account up to date.
If you are not happy with your terms and conditions serve your customer with new terms and conditions as soon as possible, but ensure they are accepted before proceeding with enforcement so that you are not in breach of contract yourself.
It is also useful to keep track of when payments come in from your customers. This should help highlight any issues before they become more serious, for example, if your customer usually pays within 30 days but is slipping to 40 days, it may highlight a cash flow issue. In this case you should telephone your customer and make enquiries about the late payments with a view to resolving the issue before it escalates.
What about disputed invoices?
Unfortunately it is common for customers to withhold payment on the grounds that there is a dispute, which doesn’t normally come to light until the invoice is already overdue.
Care must be taken when handling a dispute with your customer so as to minimise the impact on your future relationship. It is essential to contact the customer as soon as you are aware of a dispute. Discuss the details of the dispute with them, and follow up by email. Your email should explain what the issue is, who will be dealing with the issue, and what date you will follow up with the customer. This allows your customer to clarify any misinterpretation or missed information. It goes without saying that you must contact your customer on the date specified to them, even if the matter has not been resolved. So often relationships with customers break down through lack of communication resulting in wasted time and costs for both you and your customer.
Every company will have disputed invoices at one time or another, but be wary of continual disputes. This indicates that some part of your process needs to be addressed. By measuring the disputes you receive you should be able to identify any areas that are under performing and that will have a positive impact on your business as a whole.
If you would like to formulate a payment process for your business, or require assistance with disputed invoices, please do not hesitate to contact Claire Southway in our Commercial team on 01935 385963 or at Claire.Southway@SolicitorsTitle.co.uk