Don't catch a cold, make them cough up

Legislation may not be the best way to deal with late payers. Why not try a little self-help? By Roger Trapp

Late payment is high on the political agenda. Both main parties realise that the burgeoning small business sector is a potential source of support, and in recent weeks each has set out to show its commitment to solving a problem that entrepreneurs have consistently put at the top of their gripe list since banks ceased to be their pet hate.

But government intervention is not the only way to deal with the problem. The Association of British Factors and Discounters states that while it welcomes the Labour Party's commitment to change the culture of late payment, introducing the right to statutory interest is unlikely to get results. "Payment delays could get even worse as customers treat statutory interest as giving them the right to an acceptable, if expensive, type of extended credit," it states. Instead, it recommends using existing legislation more effectively to improve access to the courts: "The knowledge that any delayed payment would be quickly and effectively dealt with by application to the courts would be the most effective catalyst to bring about the necessary cultural change in the UK," it says.

However, advisers are more inclined to suggest self-help, or rather self- help with their assistance, as a way out. The firm of chartered accountants Moores Rowland, for example, encourages clients to think about debt management. Nigel Burbidge, national audit partner, says that while "a large new customer is likely to be welcomed with open arms, it also brings its own risks".

Such a customer, he adds, may seek finer margins and possibly relaxed credit terms, with the result that the business is having to work very hard to maintain customer satisfaction and can lose sight of the risk presented by a "potentially very significant bad debt".

Among the ways of dealing with this is tighter credit control - which involves companies offering reduced margins only in return for shorter credit periods and credit insurance. Other methods include carrying out proper research on customers before granting credit; setting credit limits and adhering to them; and establishing clear credit terms, and sanctions if they are not complied with.

"Most of these are quite straightforward, but it is surprising the number of businesses that fail to apply them, either through fear of upsetting the customer or through lacking the discipline internally to set systems and use them," says Mr Burbidge.

Much the same points are made by Eversheds, the national law firm. It has just published a debt recovery guide, which recommends that businesses review their bad debt ledger in order to evaluate the extent and amount owed to them.

Sue Green, head of the firm's debt recovery practice, offers a four-point plan for dealing with corporate debts:

Act quickly - put debts in order of unacceptability;

Use solicitors' letters to prompt payment - remember that the costs of legal proceedings are paid by the debtor;

Maintain complete records of payment terms, invoices and correspondence;

Take credit references before doing business with a company for the first time, ensure that contracts are drawn up clearly and protect your position by retaining ownership of the goods until full payment is received.

Businesses "should make a clear decision on the amount and length of credit for each customer and stick to it," says Ms Green. "It is best to watch your customer carefully."

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

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