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Overdue: Unpaid bills are the bane of running a small business

As every business owner knows, cash flow is vital to the survival of the business. Companies don’t just go bankrupt because they lose customers or an important contract, but mostly because they run out of money. Companies fail with the money they still owe, money that, if they had been chasing debt, could actually have led to a very different outcome.

How can you collect a debt owed? Look at it differently. Why are you in debt at all and what is preventing you from getting paid?

There are many reasons and excuses, and you’ve probably heard most, if not all of them: we didn’t get your bill, the boss is out, you’re on the next payroll, the check is in the mail, as always.

> See also: Banks can call in debt collection agencies to get back unpaid bounce-back loans

Know your customer

But take it one step further. What do you know about your customer? Are They a Good Credit Risk? Do you have a good reputation? When it comes to credit management, “Know Your Customer” is the first – and arguably most important – step in getting paid. Think of it this way: a customer who doesn’t pay you isn’t a customer at all. So enter a business transaction as comprehensively as possible.

Suppose your customer is a good risk. Then what did you do to keep a guilt from going bad?

  • Have you billed the right amount to the right legal entity and address?
  • Did you include an order (PO) that was asked for?
  • At the beginning, did you speak to your client and ask them if there is a specific process that you should follow?

It is amazing how many bills go unpaid and a debt goes bad simply because they never get into the hands of the people who are authorized to pay them.

This is particularly important today. Keep in mind that your contacts are likely to work from home or even be on vacation. As a result, your invoices may now need to be sent to a different person or email address.

“These simple tips can make all the difference in your pay.”

So imagine that you have followed best practice, your calculation is correct and undisputed – or at least not to your knowledge.

  • Did you call them to make sure that the goods you delivered and the invoice that you subsequently sent were okay?
  • In the conversation with them, did you ask about a payment date or even offered them a discount for early payment?

These simple tips can make all the difference when it comes to getting paid or at least spotting a problem early on so you have time to think about alternatives.

So what are they

Where can I go if I can’t get paid?

You can complain directly to the Small Business Commissioner (SBC). The SBC is an independent body appointed by the government that can make non-binding recommendations for the parties to resolve the unpaid bill dispute.

Depending on the size of the company you are dealing with, they can sign the Prompt Payment Code (PPC). The PPC is now administered from the Commissioner’s office. So you have another channel to demonstrate your right to payment.

You can also seek advice from free government-sponsored helplines and access free local business help from your nearest local business partnership growth center in England, the Business Gateway office in Scotland. If you are in Wales there are regional business centers in Business Wales and Invest Northern Ireland has regional offices.

Calculate penalty interest

Under the Late Payment of Commercial Debt (Interest) Act 1998, you can charge a statutory interest rate – which is 8 percent plus the Bank of England base rate – plus a reasonable cost of collecting debt for business-to-business transactions. You need to send a new invoice if you want to pay interest on the money owed. Of course, this still doesn’t guarantee that your bill is more likely to get paid, but it is a legal right and you should exercise it.

Use a debt collector

You can also use outside assistance to track debts in other ways, particularly through a reputable debt collection agency. However, be sure to only work with members of the Credit Services Association as they have a recognized code of conduct.

There is plenty of help and advice on how to hunt down debt, but you need to know where to look. A good place to start is the Chartered Institute of Credit Management (CICM). A number of guides on managing cash flows were released during the last financial crisis in 2008 and have been continuously updated since then. Most recently, a handy cash management checklist in a crisis was released to help the wider business community continue to receive cash.

But whatever you do and what everyone will tell you is not to bury your head in the sand. Act quickly and don’t just assume that something will show up. It is up to you to achieve this.

Sue Chapple is the executive director of the Chartered Institute of Credit Management

Read on for how to hunt down debt

Small Business Commissioner Q&A: Paul Uppal Discussing Late Payments

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