How to maintain cash flow and ensure you get paid on time.

Cash flow is one of the most important things to smaller businesses, but can be affected by one or two creditors not paying invoices on time. Cash is king to many businesses, big and small, but how can you ensure that your cash continues to flow. 

Here are my top ten tips! 

1) Make sure you have your forms in place 
• Credit account opening form- These should give details of who you are trading with, the address of the company or the individual, a credit limit and the period of credit that is given, e.g. 30 days. It should state the rate of interests that apply to late payments 

• Terms & Conditions – These should be professionally drafted and refer to your type of business and should have your rights and obligations as a supplier and also as a purchaser. It should include sections on: 
• Credit terms 
• Interest rate for late payment 
• Retention of title 
• Time limits for claims 
• Passing of risk 
• Limit of liability – e.g.; no consequential loss 
• Delivery dates are estimates 

2) Personal Guarantees 
• Consider asking a customers to personally guarantee the debts of the business should the business be unable to pay. 
• PG’s should be carefully drafted and refer specifically to that account and business. 
• They should add interest and costs should matters proceed to Court. 
• PG’s are best drafted by a lawyer.

3) Know your debtor
• Regularly contact your clients to ensure that their email address, trading address, registered address and phone number are all up to date. 
• Be aware of changes. Sometimes a sole trader will become a limited company and fail to inform you. This can lead to complications later on if you have to sue under the contract you have. Ask at each time of an order if the contact details are the same, “Are you still trading as Mr Bloggs, a sole trader?” 
• If there are changes – ask for a new credit form to be completed and supply new terms and conditions – a new account should be opened. 

4) Keep a note 
• Ensure that any issues between customers are noted down. The date of the conversation, who it was with and the general issues raised and the conclusion should be placed on file. This will assist later if a dispute arises. 

5) Have an internal debt recovery process and stick to it! 
• Chase the client as soon as the invoice becomes overdue. A phone call is the best way to open up dialogue. 
• Have a formal letter of demand to send reminding the client of the terms of credit and that interest and possibly late payment of commercial debts compensation will be added. This should be sent within 7 days of the debt becoming due. 
• Call the client after the letter of demand has been sent and ask for payment. 
• If payment has not been received within 7 days of the demand letter being sent then send a second letter. 
• Call the client and notify them that if payment is not received within 21 days of the date that the invoice became due that the matter will be passed to your solicitors. 

6) Use Smith Partnership’s fixed fee debt recovery process
Smith Partnership offer a fixed fee letter before action to be sent to debtors from as low as £5 plus VAT. 

You can instruct Smith Partnership to act by simply sending an email with details of the value of the debt and the name and address of the debtor – jak.ward@smithpartnership.co.uk 

The letter before action can be sent out with 24 hours of the email being received. 

7) Ask your legal Advisors for options if the letters before action do not work 
There are several options available to you as a creditor. You may wish to issue a county Court Claim, you could depending on a number of factors consider winding up the company, or seeking a bankruptcy order against an indicial. It may also be that you have a retention of title claim for goods that your debtor holds which they received form you but have not paid for. Good Legal advice will assist you getting your money back quickly. 

8) Liquidation, Administration Receivership 
What is the difference? Sometime a client has not paid you because they are unable to pay their debts and have gone in Liquidation, Administration or Receivership – But what does that mean to you as the creditor. At Smith Partnership we have a dedicated Insolvency team who will guide you through the insolvency maze. Click here to find out more information about our Insolvency team. 

9) Don’t forget interest
Your terms and conditions should provide for interest to be paid to you if the invoice is late. For business debts the Late payment of Commercial (debts) Interest Act 1998 provides that interest can be charges at a daily rate as well as a sum of compensation. This Act must be within your terms to be invoked, if you do not have that term then a Court can apply a discretionary amount of 8% per annum. 

10) Don’t delay 
• Statistics show that a creditor is more likely to recover the debt if they act within the first 30 days of the debt coming due. After that the prospects of recovering money are reduced. 

Smith Partnership offer an online debt recovery service called Activate.  We are more than happy to offer a free demonstration of our system, so please feel free to contact us to discuss your needs. For more details on our computerised system, please see the Activate page of this site or contact Jak Ward on 01332 225426.