18/03/2015

By Mark Gardner, disputes and debt recovery lawyer at Excello Law


Regrettably, from time to time SMEs may encounter customers who are not able or willing to pay debts. Whilst to some extent this is an occupational hazard, there are ways to minimise the risk of this happening and at least ensure you have the processes in place to make debt recovery easier, should it come to that.

Here are my pointers for SMEs:

1. Use a credit application form, request references and consider a credit check on your customer’s business.

2. If possible visit your customer’s premises to give you a feel for the type of business you are dealing with.

3. Build a credit history by asking for payment upfront for the first few orders.

4. Monitor the account and take a copy of the first cheque that is received as payment.

5. Be prepared to ask for payment, don’t just assume the payment will be made without any further follow-up past the payment date.

6. Take notes of any discussions, promises or excuses relating to payment that you have with the customer. Is the story consistent or are they merely trying to buy time?

7. Investigate, resolve and deal with any issues raised about the quality of the goods or services supplied.

8. Confirm what is discussed and agreed, in writing or by email.

9. Do you have a set of terms and conditions of business? Are they incorporated into the contract? If so, make sure you know what they say.

10. Be prepared to stop supply. There is no point in continuing to supply to a customer who is not paying. That said, you should also be prepared to continue supplying a customer who is willing to pay up front for future orders together with paying off at least some of the arrears.

11. Monitor your debts before they get too big - if you go to court, court fees will be 5% of the total debt.

If all else fails you need to be prepared to sue. Hopefully you will have ascertained that your customer is worth suing, that there are no disputes, and you have file notes and correspondence acknowledging the debt. In most cases, it won’t come to that and by putting these simple steps in place, you should hopefully avoid supplying some non-payers altogether or at least can ensure you are able to identify payment issues before they escalate and deal with them swiftly and effectively.