Research from Barclays has found that 58% of SMEs are currently experiencing cashflow issues because of unpaid invoices. That’s three in five businesses! With the ongoing challenge of increased utility costs and the general cost of living, late paying clients only adds to the stress of managing your cashflow.

The odd invoice going overdue can be managed, but regular and multiple payments being missed can have a detrimental impact on the company finances.

This month we have a guest blog from Jay Sahota, Senior Partner and Head of Dispute Resolution at Jarmans Solicitors. Jay shares his advice on how to ease your cashflow and recover the money you’re owed.

Top tips for effective debt recovery

Late-paying clients can heap cash flow problems on their suppliers and, in extreme cases, threaten their survival.

Apart from the ethical and moral issues surrounding late payment, tardy payers have a detrimental impact on all businesses, but smaller ones in particular.

Knowing what to do when a client reneges on a payment agreement, or delays payment beyond a reasonable time, is crucial to any business.

Here are my top 10 tips to any business worried about slow-paying clients, urging them not to wait until that unpaid invoice starts flashing red but to think about it well before taking on any work with a new client.

1. Carry out a risk assessment – look online, at Trust Online and on the Insolvency Service website. What is the counter-party’s reputation?
2. Carry out credit checks with Companies House and credit reference websites.
3. Make sure you know whom you are dealing with (eg company, sole trader, partnership, individual?).
4. Make your Terms and Conditions robust and have a comprehensive credit policy in place.
5. Look carefully at the customer. If you suspect they pose a high risk, take that into account when formulating your Ts&Cs, or the way you are going to trade with that particular customer (for instance, consider agreeing direct debits to help with liquidity and certainty).
6. Consider other forms of protection such as personal guarantees by directors (and of course insurance).
7. Ask for a deposit or advance or for someone to be a guarantor.
8. If the counterparty looks as though they have trouble paying, take immediate action. Address the situation as you go along. Send reminders; try to find out why the payments are late; perhaps tighten your terms.
9. Be proactive in debt collection or you will be seen as soft.
10. The longer you leave chasing the debt, the more they will think they can get away with it. When chasing debt, add chaser costs and interest (make sure these are in your Ts&Cs) and perhaps use these as leverage for speedy payment.

For help with drafting your Ts&Cs (or if you don’t have any!), for general advice or if you need to pursue a debtor, contact me at j.sahota@jarmans-solicitors.co.uk or call 01795 472291.

We’re here to help

If your cashflow problems are becoming more difficult to manage or you’re concerned that your company is insolvent, the best advice is to contact an insolvency professional to understand your options. Contact our team today on 0808 196 8676 or email help@trusolv.co.uk