UK: CRASH COURSE - TACKLING LATE PAYMENT. - Your invoice may read 'Payment Terms: 30 days', but on average it takes small companies 46 days to get paid, according to an annual survey by accountants Grant Thornton. That's better than a few years ago, but

Last Updated: 31 Aug 2010

Your invoice may read 'Payment Terms: 30 days', but on average it takes small companies 46 days to get paid, according to an annual survey by accountants Grant Thornton. That's better than a few years ago, but still a source of deep irritation to those who find themselves providing an unwitting fund of free credit. Apart from the damaging effect on cash-flow and the time taken up in chasing bills, the real risk is that late payment turns into bad debt. So how do you tackle the laggards?

VET YOUR CUSTOMERS. Before accepting an order from a new customer, check that they have the ability to pay. The company's own trade references are selective and of limited value; far better is an independent credit reference. Agencies such as Dun & Bradstreet can supply a variety of reports on the company with financial information, credit history and rating relative to others in the sector. At the very least, it is worth checking that details such as address and telephone numbers are bona fide.

PROTECT YOURSELF. At the very least, you should apply a credit limit to each customer, based on the rating supplied by credit agencies. In cases of doubt, you can ask for guarantees from a holding company, or even personal guarantees from principals, before doing business with another company. Another way to reduce your exposure is to take out insurance. As Tracey Daley of Griffin Credit Services puts it: 'For most companies, your debtor book is one of your most valuable assets, so you should insure it just like your buildings and contents.' Protection typically costs between 0.4% and 0.7% of invoice value.

AGREE PAYMENT TERMS. Don't just print your terms on your invoice; ask for acceptance in writing. If you're supplying a product with low depreciation, such as computer hardware, it may be worth including a 'reservation of title' clause in your terms of business, which means the goods are yours until paid for. You can even include a legal right to enter a customer's premises and take them back.

FOLLOW UP INVOICES. Once you have sent an invoice, ring a couple of days later to check it has been received, that there are no queries and to confirm that it will be paid on time. This makes it harder for the customer to introduce spurious delaying tactics later on.

KNOW YOUR CUSTOMER'S SYSTEM. 'You should find out the best date in the month to raise an invoice,' says David White, a senior manager of growth and development services at Grant Thornton. 'They may have only one cheque run a month, and you want to make sure you don't miss it.'

RESOLVE QUERIES SPEEDILY. A dispute over even the smallest part of the goods on an invoice can hold up payment of the whole bill. Ask for the balance to be paid on time while you sort out the problem.

CHARGE INTEREST - MAYBE. Under recent legislation, if you're a small business (less than 50 people) you have a statutory right to interest on a late payment from a big business (more than 50). You can claim 8% over the Bank of England base rate (full details can be found in a free booklet available from the DTI Publications orderline on 0870 150 2500). But as the interest stacks up, your goodwill is liable to disappear down the plughole. Don't expect any repeat orders.

LOOK FOR ALARM SIGNALS. A broken promise about a payment can be the first indication that a business is in trouble. David White suggests that credit control should liaise closely with the sales force in order to obtain ground-level intelligence on any financial difficulties. Remedial action might include stopping the account, asking for arrears to be cleared by standing order and bringing in senior managers to re-negotiate payment.

DO SAY: 'Our invoice number xyz is now overdue, so can you please tell me what arrangements you will make to pay it within the next 24 hours.'

DON'T SAY: 'Thanks for the order, brilliant news. Don't worry too much about that last bill - just pay it when you get the chance.'.

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