Last week, Jeremy Corbyn announced plans to, according to the Independent, 'woo small business owners with a package of reforms aimed at helping small-time entrepreneurs, self-employed tradespeople, and local firms'. One of the most fundamental ideas is to 'declare war on late payments' which can have a devastating effect on the cash flow of smaller businesses, particularly when compared to the funding and banking arrangements of much larger companies.
However, there are things that small businesses can do to help mitigate their exposure to risk, and hopefully keep problems down from the outset. Below are some suggestions for best practices:
1. Ensure you have a good credit control process in place.
Make sure you have someone allocated in your business to chase debtors regularly. This will help your debtors realise you are serious about collecting invoice payments on time, and hopefully mean they are less likely to pay you late.
2. Ensure your terms and conditions are legally water tight.
If you don’t have terms and conditions, get some in place! Terms and conditions not only cover when you want payment, but also what happens to your goods if the customer is late in paying, whether you can charge interest, and even your ability to enter into a premises to recover any goods that are not paid for, or if the customer goes into liquidation (also called a retention of title clause).
3. Depending on your financial and personnel resources, determine from the outset your internal policy on how to deal with late payers.
For example, are you going to withdraw credit from regular late payers, consider getting personal guarantees from directors, and determine when and how long you will leave a late payment before chasing, or even if you want to adopt a policy of when you intend to instigate legal proceedings.
4. Consider keeping a regular review of your risk areas and, if necessary, seek advice from a solicitor.
Remember that prevention is better than cure and can be more cost effective in the long run. Disputes can also be crippling to cash flow of a business as well.
For any legal advice relating to your business, large or small, contact a member of our Business Law Team on 01279 755777.