1. Ask customers to provide the following information: name and address of their bank and when the account was first opened.
2. For limited companies, the registration number and date of incorporation.
3. If the person is self-employed and has not been in business long, ask for home addresses of all the partners (so that you can check personal credit histories as well).
4. Name and address of two or three other firms presently supplying the customer on credit and permission to approach them for a reference.
5. Check out the creditworthiness of new customers by talking to other suppliers or a credit reference agency. If a customer has an unsatisfactory payment record, insist on receiving payments from them prior to dispatch of goods or services.
6. Agree payment methods prior to offering credit terms. Credit limits should be agreed for each customer, and the terms should be reviewed on a regular basis.
7. Asking for a deposit is a good test for the commitment of a customer; it establishes that they can pay and that they are committed to the order.
8. Draw up a written contract covering the terms and conditions of trading.
9. Maintain close contact with your customers. Ideally, the person who agreed the deal should be the main channel of communication with the customer.
10. The place to invoice may not be at the point of delivery. Double check that all details are correct (and legible) before you send the invoice, and invoice as soon as possible. Try to invoice in a way that suits the customer, not your own administration. If they have to change their system to suit your invoice, payment could be delayed.
11. If you issue a written reminder, be very direct. Remember your customer has broken an agreement.
12. Monitor overdue payments and frequently follow these up. For most small businesses, chasing debts should be a weekly activity in conjunction with the other accounting procedures.
13. Chase those customers with large debts before chasing those with small ones.
14. Consider putting a stop on future deliveries until payment has been received.
15. You could sell the debt to a collection agency.
16. If you think the customer is able to pay but chooses not to, then you could resort to the law. Taking legal action should be done with care, but is often much more straight forward than many expect.
17. If the debtor is insolvent you may choose to take steps to enforce liquidation or bankruptcy so that you can make a claim on any remaining assets.
Do's and Don'ts
Do:
Review your terms and conditions of trading - ensure that payment terms are clear and unambiguous.
Ensure that you have a way to obtain proof of delivery.
Review overdue debtors list on a monthly basis.
Concentrate your debt collecting efforts on where return will be greatest.
Try to become adept at spotting bad debtors. Consider withdrawing terms from persistent bad payers.
If your customers are reasonably good payers, but you need to get invoices paid faster, consider using factoring or invoice discounting.
Don't:
Do not take late payment problems for granted. Look for the underlying reasons, inside and outside the company, and try to address them directly.
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