16 July 2020

Protect cashflow now to save your business

Read the first 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 our top ten tips to give your company the resilience you need in tough conditions.

Review your terms and conditions, making sure all clauses are up to date and apply to all customers

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This is crucial. Make sure all customers have signed and returned the terms and conditions. Examine your Retention of Title clauses to ensure they apply andthat they’re enforceable. For example, do you have a right of entry clause in your terms? Statements on invoices that simply say ‘goods remain the property of the seller until paid in full’ are unlikely to be enforceable.

Consider late payment and interest clauses. Do they improve on the provisions of the Late Payment of Commercial Debts legislation or do they put you in a worse position due to the low bank base rate?

Is there a personal guarantee from a director? If so, has it been signed properly and by the correct person with legal authority to do so? Further, if necessary is the guarantor worth taking legal action against. Remember that a guarantee is only as strong as the person who gives it.

Know who you’re dealing with – check the legal status of your customers

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It sounds obvious, but how well do you really know your customers? Be clear who your contract is with.

Basic questions – such as the trading status of your customer – are vital. If they’re a sole trader, do you have their full name and home address?

Is the customer a partnership, limited company or other type of organisation such as an association or club? Then make sure you have the names of the partners, the full limited company name and registration number or names of relevant officers.

This is important stuff. If you do need to enforce the contract, for example through recovering debts, you need to be clear on the exact legal status of the party involved. There are pitfalls if you don’t. For e.g. if you sue the wrong person who isn’t ‘legally’ responsible, you could be at risk of the innocent party claiming costs.

Any type of legal action against a trading name itself is inadvisable – and very likely to be unenforceable.

A trading name alone is not a legal entity. Taking a hypothetical example, the legal entity is ‘John Smith Sons and Holdings Ltd’ and not the trading name ‘JS Fun In The Sun Holidays’.

Make sure documents are compliant to support your claim for payment

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Make sure your invoice is addressed to the correct party and sent to the correct address – and contains all the relevant purchase order numbers / reference codes. Can you support your claim with evidence of the order and proof of delivery?

Be prepared to forward any requested documentation (by email if possible) to prove the validity of the claim. This will prevent debtors unnecessarily delaying payment by requesting supporting paperwork.

Build strong communication between credit control and sales to deal with disputes and queries promptly, control credit and build a stronger relationship with customers

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Sales teams and credit control can often appear to have conflicting objectives. Ensure that there are good lines of communication between each team.

The sales staff may well be closest to the customer, giving them an advantage when recovering payment.

If a customer raises a problem or dispute resolve it promptly. Don’t let it be used as an excuse to delay payment. Consider the bigger picture too: resolving a dispute, even if it means taking a slight financial hit, might mean that larger sums are paid more quickly.

If resolution isn’t possible straight away, try to agree a payment is made on the invoices that are undisputed while you try to resolve the others.

Use the sales team’s knowledge of the customer to stay alert of any early warning signs of financial difficulty. In the event of any ‘red flags’, you should control the credit allowed to customers and watch out for unusual ordering patterns.

Work with the sales team to build a rapport with customer. If a customer is in financial trouble, they’re more likely to agree a way forward with someone they deal with regularly.

Credit control procedures – ensure your processes and systems are in place to chase payment rigorously but fairly, and react quickly if repayment plans break down

It’s important to have a system in place. Draw up a clear schedule of communication to chase payments, such as reminder letters, emails, texts and telephone calls. Stick to these timescales but allow for common sense and flexibility if customers cooperate but have genuine temporary difficulties.

Be prepared to use ‘retention of title’ clauses quickly if payment is looking doubtful and escalate to legal action swiftly if communication stops and/or payment is looking doubtful.

Remember that positive action puts you at the front of the queue for payment. The longer the debt is outstanding, the more difficult it is to recover.

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

Find out more

  • For a full rundown of our recoveries work, click here to find out more and meet our team of experts

  • Find out more detail on our commercial recoveries here

  • If you're worried about your business and want to look at the options available, contact Wilkin Chapman Business Solutions on 01302 342875

  • Look out for our final five tips for protecting your cashflow . . . coming to our website later this month

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