Credit Control – Good Practice

October 28, 2016

Over the years I have received many instructions from small to medium sized businesses and whilst many of the clients’ credit control policies have been set up well, there are others where the lack of information or clear information has hindered the ability of the Solicitor to take as effective action as is necessary and has made the process more costly for the client in the long run.

I am putting forward some points that may be useful for creditors to look for out in respect of their credit control policy and dealing with their own customers and the information they should be obtaining from their customers to maximise their chances of recovering monies should the relationship between the client and their customer break down and Court action becomes necessary.

  1. Know your Customers:

When you first do business with your customer and request an application form with references to be filled out, it is important that the correct information is provided and that you know what type of business you are dealing with. The customer can either be an individual trading as a business, or a limited company. This should be clearly set out on the form.

If the customer is a limited company, then it is preferable for one of the Directors to give a personal guarantee in respect of any debts incurred on behalf of the company. If it is a limited company then a company registration number should also be provided.

If the business is an individual or individuals trading as, then it preferable to obtain a home address for the individuals as well as a business address as the individuals are personally liable for the debts of the business.

Clear information on the application form will assist at a later stage should Court action be necessary.

  1. Terms and Conditions:

It is important for each business to have their own terms and conditions setting out how business is to be conducted including when invoices are to be paid. The terms can also detail a contractual interest rate should payments be late although any contractual interest rate must be reasonable and not be a penalty clause.

The Late Payment of Commercial Debts (Interest) Act 1998 and Late Payment of Commercial Debts Regulations 2002 also set out statutory compensation available for any business in the event of payment being made outside the contractual terms. Some businesses include a statement on their invoices advising that the Late Payment Legislation will apply and that the compensation will also apply to invoices which are paid late.

The compensation is fixed at £40.00 for each invoice where the invoice amount is under £1,000.00, £70.00 for each invoice where the invoice amount is under £10,000.00 but above £1,000.00 and £100.00 for each invoice where the invoice amount is over £10,000.00.

The Late Payment of Commercial Debts Regulations was also updated in 2013 meaning that it is possible now to claim reasonable additional costs if you use the services of a debt recovery agency. These costs can now be added to the claim. This is only useful for pre action costs that have been incurred. Once proceedings have been issued, then the Court will award costs and it is unlikely that a Court will allow two sets of costs for the same action. The statutory fixed costs will always be able to be recovered.

  1. Good Communication with Customer:

It is useful to keep a record of all communication whether by email, or by letter with the customer in respect of requests for payment. This will show a chain of communication and will indicate whether or not there has been any dispute raised at an early stage in respect of any of the invoices. Whilst not fatal, it is also useful to have all proof of delivery forms signed at the point of delivery and copies kept so that there is documentary proof of the delivery of goods which may be one of the disputes raised by a customer at a later stage that some goods were not delivered.

All the issues raised above may not produce payment from a customer who is experiencing cash flow problems, or does not intend to pay, however, it will assist your legal representatives to effectively manage any debt collection action that may be needed without incurring unnecessary costs and outlays in trying to find out information at a late stage which could have been available if the correct credit control procedures had been in place from the start.

Please note:

The content of this article is for information purposes only and further advice should be sought from a professional legal advisor before any action is taken.

Please contact Cleaver Fulton Rankin on 028 9024 3141, or alternatively visit www.cfrlaw.co.uk