2020-02-17
Legal Articles

Getting paid: don’t rely on your customers’ goodwill to observe your credit terms

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Posted by Kalpesh Patel on 18 April 2019

Kalpesh Patel Legal Manager

It may seem blindingly obvious that a business that runs out of cash is likely to fail. But that is what happens to thousands of small businesses every year – and not because the business is essentially unsound but because their owners pay insufficient attention to managing their lines of credit.

If you don’t control your credit and manage your cash flow, you are essentially bankrolling your customers. Unless you have deep pockets, this approach is risky and likely to tip you into the red – and possibly insolvency.

Good credit fundamental to good business

Implementing good credit control hygiene, and identifying, and dealing with, bad debts, is crucial to your business’s survival:

  • Seek advice on what good credit control looks like. There are many sources of help including the Federation of Small Businesses, your bank, lawyer, accountant or book keeper.
  • Take credit control seriously. There are simple ways of keeping on top of it such as implementing a diary ‘bring forward’ system to remind you to follow up bad payers.
  • Never allow credit for an amount you cannot afford to lose
  • If you must give credit for a large amount, insist on ‘retention of title’ provisions or some other form of security. This will give you priority as a creditor if your customer becomes bankrupt.

Chasing bad debts

So, what do you do about collecting the money owed to you? Hopefully, most customers will pay their bills once reminded but there is always a hard core of bad payers that can undermine any amount of good credit control practice. Outsourcing your debt collection is one way to stop rogue non-payers from scuppering your business and they can help in a number of ways:

  • Choose a debt collection agency that operates with integrity and will uphold your reputation
  • A good agency will devise a bespoke strategy for recovering both single and bulk debts
  • An agency can fine-tune its approach to take a firmer line with those customers which are persistently bad payers and with whom you no longer wish to do business.
  • All reputable debt collection agencies will have signed up to the FCA’s regulatory requirement to ‘Treating Customers Fairly (TCF).

Treating customers fairly

The obligations laid down in the FCA’s ‘Principles for Business’ ensure that those debt collection agencies that have undertaken to abide by them treat their customers fairly by:

  • Conducting their business with integrity
  • Listening and responding to their clients in a way that is clear, fair and not misleading
  • Managing potential conflicts of interests between itself and its customers and between its clients
  • Ensuring that customers receive suitable advice on which they can rely

About the author

Kalpesh Patel

Legal Manager

Kalpesh is a Fellow of the Chartered Institute of Legal Executives who has specialised in debt recovery since 2011.

Kalpesh Patel

Kalpesh is a Fellow of the Chartered Institute of Legal Executives who has specialised in debt recovery since 2011.

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