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LEGAL ULLET
Page 25
Page 26
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Where credit's due
Managing your invoices, also known as credit control, is as important as making your deliveries on time. If you don't get paid when you should—or at all—then what is the point of doing the work?
The haulage industry is extremely competitive and a new customer is always an attractive prospect, but there are plenty of customers out there looking to take advantage of your credit control policy—or lack of it.
Your may have a healthy-looking order book and work long hours, but is the money coming in on time? Profit margins are being cut and therefore timely payment of your invoices is more important than ever before. Your leasing company and fuel supplier expect payment on time, so why shouldn't you?
Many companies make the mistake of thinking that credit control starts when the invoice isn't paid within the credit terms—this couldn't be further from the truth.
In fact, credit control starts when you answer the phone to a prospective customer, who asks: "Can you do a job for me?" A good clear credit policy will reduce bad debts and ensure a healthy cash-flow.
Below, we look at a step-by-step guide that will assist you in developing a simple but effective credit-control procedure, starting at your initial discussion with a new customer, and going through to the recovery of a debt through the courts, if necessary.
Credit application form
A bank would not lend you money without asking you to complete an application form, so why should you grant credit without ascertaining similar details from your customers?
It may be impractical to send all new customers an account application form before you commence trading, but at the very least you should create your own 'customer details' form to ensure that you know who you're dealing with, and therefore who to chase for payment. This form will also allow you to make accurate credit reference agency checks, should you wish to do so.
This information will ensure you address all future invoices correctly and therefore limit excuses for non-payment. If payment is not made on time, it then provides you with clear details of who to chase.
Credit checking
You may wish to check a potential customer's credit-worthiness before you commence trading. You can obtain a credit check on both individuals and companies through various credit reference agencies—either by post, telephone or over the internet.
The completed credit check will detail adverse references, county court judgments and provides a credit score, which is based on information gathered from public sources and from other companies who subscribe to that particular agency.
Credit control procedure
A strict credit-control procedure is vital in ensuring that outstanding invoices are collected in the shortest period of time possible. More and more businesses are delaying payment of suppliers' invoices in order to ease their own cash-flow problems. To ensure early settlement you must have good clear documents and an efficient procedure.
The reminder letter provokes payment from customers who have genuinely overlooked payment.
The telephone call gives the customer an opportunity to raise any queries or explain why they cannot pay. Details of these conversations should be logged; the aim is to obtain a 'promise to pay' from a named individual, either that day or an agreed date in the future.
This ensures you have an individual who you can ring back and challenge should the payment not materialise as agreed.
The final letter gives a customer the required written notice of demand for payment before court proceedings are issued. At this stage, 70% of outstanding invoices should be settled.
The final courtesy call is not an opportunity to discuss the debt, simply a call advising that proceedings will be issued the following day unless payment is received. This is simply to ensure that the customer is aware of the invoice and the sanctions for nonpayment.
Visits
Visits are only recommended on larger debts. While it is easy to ignore letters and telephone calls, a personal visit to the customer is difficult to avoid and often produces results. There are times when even the tightest credit control functions do not ensure payment, and further action needs to be taken. The most common course of action is to issue a claim form in the county court.
Debts under i5000 are treated as small claims which, if disputed, are dealt with at an informal hearing before a district judge. The court does not expect the parties to be legally represented and only small fixed costs are recoverable from the losing party.
Within the claim form, you can claim interest at either the statutory rate of 8%, or at a contractual rate if your terms and conditions allow. The court fee is also recoverable.
Judgments
If your debtor fails to respond to the claim form, you can request the court to enter judgment ordering the debtor to pay the debt, costs and interest.
All judgments in the county court entered in England & Wales are recorded on the register of judgments.
This is a public record and affects the debtors' credit rating for a period of six years. The court does, however, allow a period of one month before registration as an incentive to debtors to settle judgments quickly.