Better Payment Practice Group urges UK Businesses to get tough on late payment.

In 1998 the Government introduced a three-phase piece of legislation to assist businesses with late payment problems. Recently the Late Payment Legislation has come under great scrutiny because it has not single-handedly resolved the UK’s late payment problems. But Peter Rowe Director General of the Institute of Credit Management explains the legislation was designed to be an additional credit collection aide - not a wonder cure for late payment problems.

Mr Rowe said that businesses had to be more prepared to take responsibility for implementing tighter credit policies if the UK’s payment culture was to improve. He said it was unreasonable to expect one collection weapon alone to ensure outstanding debts were settled.

“Many businesses develop and implement ‘Non-Smoking’ Policies, Health and Safety Policies and Equal Opportunity Policies, yet don’t have a standard Credit Policy. Without a Credit Policy in place, businesses can’t realistically expect their monies to be paid punctually.”

A good Credit Policy starts with ‘vetting’ the credit worthiness of new businesses and assessing what type of client they may become e.g. a ‘blue-chip’ client, standard risk client or high-risk client. A decision should then be made as to whether a business agreement is worth pursuing. If the decision is to enter into an agreement with the business, a contract should be established outlining the business Terms of Trade (also known as Conditions of Sale). It is vital that this document is written in plain English and understood and agreed by both parties before or at the time the deal is done. The document should include: the agreed payment period; interest payable on late payment; suppliers’ rights on late payment; terms about the quality of the goods; suppliers’ rights to ‘retention of title’ and the time-frame for raising queries.

Businesses should also have a fast, accurate and systematic collection
structure that includes collections weapons such as: invoices and statements,
letters (with reference to interest charges), emails/faxes, the telephone and if necessary personal visits. It is up to individual businesses to decide which weapons to use and when – but it is vital to ensure consistency. It is also important to ensure the person dealing with the collection process is empowered to speak on behalf of the business. As such they must have knowledge, skills and authority to deal with any account queries or problems.

During the collection process, some businesses encounter customers who: will pay; won’t pay, can’t pay and can pay. At this point the business may wish to impose collection sanctions such as stopping supply, reviewing the credit limit, imposing interest, retention (taking the goods back if possible), use of a collection agency or legal action. However, a customer who can’t pay may have encountered a genuine situation that has impacted on their ability to pay. If a customer has a genuine problem it may be in the interest of both parties to negotiate a settlement – perhaps by introducing a ‘payment plan’.

12- Step Collection Process

1. Check a new customer’s creditworthiness before drawing up a contract.

2. Refuse orders if a customer has an unacceptable payment record, or obtain payment in advance.

3. Set strict credit limits and keep to them.

4. Prepare unambiguous written contracts and/or terms and conditions of trading.

5. Involve the sales force in negotiating the payment terms and ensuring that these are understood and agreed from the outset.

6. Make sure you know and comply with procedures used by your customers’ buying and accounts departments.

7. Initiate and maintain close contact with your customers, particularly with the person responsible for paying your account. Try to create a rapport so that, even when money is tight, you are top of the list to be paid.

8. Make regular credit checks on your existing customers.

9. Ensure that all despatch notes and invoices are accurate, and are delivered to the right customer, at the right address, at the right time.

10. Put a “stop” on supplies to customers who are not paying, and use their desire for further supplies as a spur to payment.

11. Send regular reminders and chase payment persistently by telephone/fax/e-mail and by visits to your customers.

12. If all else fails, place the debt in the hands of a debt collection agency or a solicitor who specialises in debt collection.

In some cases a customer may simply ignore requests for payment, or makes endless promises to pay – which are not kept. In such situations, some final action becomes necessary and should be taken without delay.

Stuart Blake from the Forum of Private Business offers advice on how to pursue debts in situations where the debtor has ignored all previous requests for payment and is known to be able to settle the outstanding amount.

“If payment is not forthcoming voluntarily, once judgment has been obtained, it may be necessary to take steps to prompt the debtor. These proceedings
may include issuing an application for an oral examination, serving a Statutory
Demand and/or sending in the bailiff /sheriff, - while these suggestions are not exhaustive they do provide an indication as to what steps can be taken ” he said.

An oral examination is an application to court (costing £40) for the debtor to be summoned to court to be examined on oath as to the financial means of the company. The best person to make the application against would be the person in the company having responsibility for and knowledge of the finances. Failure to attend the examination can eventually lead to imprisonment for contempt.

A Statutory Demand is a precursor to Winding Up proceedings (suitable where the debt is £750 or more). If the company is solvent, this is more likely to result in payment as it is unlikely that the company will wish to be wound up if it is solvent. Failure to comply with a Statutory Demand is an automatic ground for winding up so if this does not bring about payment, it is likely the company is insolvent in which case it is probably not worth wasting the money and issuing winding up proceedings. A statutory demand is free, save for the cost of preparation.

If it is decided to enforce by bailiff action, consider transferring the judgment up to the high court so that enforcement is by Sheriff Officer. They are generally more persistent and effective than bailiffs, though they can end up costing more.

Prior to taking any of the above actions, it is important to ask five basic questions, all of which go back to the credit management function.

1. Who is the debtor?
2. Can you prove the claim?
3. Have all genuine queries been resolved?
4. Can you show a ‘reasonable’ approach to collection?
5. Is the debtor worth suing (can they pay)?
   

If the answer to number five is NO, then the debt will have to be written-off.
Through good consistent credit collection procedures late payment, or worse still non-payment, can be radically minimised. The tools are there, the legislation is in place – it is now up to businesses to take control.

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