Protect cashflow now to save your business

09 September 2020
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Read the next five of our top 10 tips to keep your company afloat in the aftermath of the national coronavirus lockdown.

As lockdown measures soften, many companies are back in business. But cashflow problems could lurk around the corner. Here’s the next five of our top ten tips to give your company the resilience you need in tough conditions.

Tip 6

Consider the most appropriate way to handle your best customers

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Would you, for example, consider ways in which you can give your most loyal clients/customers some much-needed breathing space if they need it. They may be facing difficulties themselves due to the pandemic and if there are ways you can ease their burden today that will enhance your long-term relationship. Could you:

Structure payments to allow smaller but regular payments to clear a debt?

Allow supplies on a cash basis so a customer can trade whilst building their business back to normal levels? It is then that credit terms can be considered again.

Control the amount of credit carefully and consider using early warning credit systems to alert you to customers who may be struggling. You can then begin the conversation with them.

TIP 7

If legal action is the only option, do ensure you follow the rules

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You may feel there is no alternative but to commence the legal process known as ‘pre-action letter before action (LBA)’. If this is the case, ensure that you comply with the ‘Debt Recovery Pre-action Protocol’ and use digital channels as an efficient way to contact the customers concerned. Remember, the protocol requires a different approach for different customers, for example sole traders and limited companies.

You may decide to draft your own protocol documents, and that is fine. But please ensure that you use the correct templates and include response packs and all supporting documentation.. A breach of protocol could mean that legal proceedings are stopped by the court, incurring unnecessary costs and you could be liable for an order for costs imposed by the court.

Where possible try to resolve any disputes, and preferably gain written admissions from customers confirming they accept the debt is due for payment.

Match your collections approach to that of your customer. For example, some customers reply more readily to text or email communications and make sure you do the same.

TIP 8

Late payments: make sure you receive what you are entitled to

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Late Payment Compensation and interest can be claimed as soon as a debt is overdue. You don’t need to wait until you start the legal process to apply late payment charges and interest. The full details of actions you can take are within the terms of The Late Payment of Commercial Debts (Interest) Act 1998 and The Late Payment of Commercial Debts Regulations 2002.

Examine your terms and conditions to ensure you can use the Late Payment legislation. If your terms provide for a different rate of interest you will be bound by the contractual terms. In our experience they are usually much less favourable.

If nothing else, consider using the late payment legislation as a bargaining tool to extract payment of your outstanding invoices.

Consider how to apply compensation and whether you apply it per invoice or on an account by account basis, especially if you have a number of small invoices outstanding where the compensation charged looks disproportionate.

TIP 9

Have you considered the outsourcing of your debt collection?

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During the ‘bounce back’ to normal working, internal resources may be stretched. Consider if your staff’s time is utilised best wrestling with legal proceedings or could their time be more usefully spent chasing payment earlier in the process preventing debts reaching the legal stage.

Don’t blindly follow the legal process set out on-line. You could be wasting money and using routes to collection that are uneconomical.

If a claim is defended don’t immediately discontinue because it’s too time consuming or struggle along with small claims internally. Consider outsourcing defended claims. The costs are cheaper than you think, and many law firms offer fixed fees or success-based agreements.

If you do outsource use a reputable, experienced partner that specialises in debt recovery. All law firms will say they provide debt collection services but how specialist are they? Make sure you get a designated contact and not a factory approach, ask for prices in advance and never pay large fees up front to debt collection firms without clear justification as to what you are paying for.

Tip 10

The legal road to recovery has many paths – make sure you explore them all!

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There are a range of enforcement options available so make sure that you or your advisor considers all options and selects the most appropriate and cost effective method.

Consider insolvency action as an effective recovery tool for larger debts.

Make sure that you or your advisor carefully select High Court Enforcement Officers to ensure compliant and effective bailiff work that protects your brand reputation.

Always start from a position of considering your leverage against the your customer. Examine how that leverage can be utilised via the enforcement system to persuade payment, putting your claim at the forefront of the customer’s mind.

Need our advice? Just ask

If you need support with any of the above, including recovering payments from debtors, contact Jenna in our recoveries team on 01472 253939 or email jenna.emsley-fairbrass@wilkinchapman.co.uk

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