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News - 7 October 2014

The impact made by late-paying customer

The age old problem of late paying customers and whether to stop supplying them is even more evident in today’s business environment.

With pressures on businesses from many angles, it can seem illogical to stop trading with a customer, particularly one of the major customers we may have, but when payment terms are being continually stretched or late payment is putting your business at risk, is the customer really worth retaining?

We asked TK and Stuart for their advice.

Tonmoy Kumar, Manager of the Accounts Department of ABDS comments:
“Strict T&Cs and solid credit management policies provide the right foundations. Whilst it may be tough to stand your ground with a larger customer, particularly when trying to win business, demonstrating that you will not accept any deviation from the outset will go some way to laying down the foundations of a successful customer/supplier relationship.”

Stuart Coleman, Manager of the Tax Department of ABDS comments:
“For persistently late paying customers, it can often help to place them on a ‘stop list’ or a ‘watch list’. Businesses on the stop list should be informed and not supplied with any further goods or services until all outstanding invoices have been settled at the very least. Those on the watch list should no longer be offered credit terms without an up-front payment or deposit; you could even ask for the full amount to be paid when placing the order.”

TK again
“You are entitled by law to charge interest on late payments at a rate of 8% plus the Bank of England base rate. Additionally you can claim debt collection costs of between £40 and £100, depending on the invoice’s value. You may be reluctant to apply this charge incase the customer will take its business elsewhere but there is no point in having a customer who does not pay.”

Stuart again:
“Exploring cash flow solutions such as invoice finance, which release cash against invoices within 24 hours of their issue, can be beneficial to many businesses who trade on credit terms.”

TK again
“It can be beneficial to prepare for the worst by acquiring credit protection, which can help protect against the repercussions of late payment and bad debts by safeguarding the business from non-payment through insolvency or protracted default.”


Stuart again:
“As a last resort you could call on the expertise of a debt collection agency, which can be the quickest and most effective way to get results. The involvement of a third party adds weight which is sometimes enough to show the customer you mean business.”

Thank you Stuart and TK.

If you need any help and advice on Management Accounts, Budgets and Cash Flow Forecasts, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar NOW to discuss how ABDS can help in all your financial planning.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net
 

Brilliant with numbers   
Great with people  
Clear and precise with advice
Timely and cost effective 
In touch with issues that face our clients and
mindful of their long term strategic goals 

Helping Your Business is Our Business

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