This is a series of Q & A interviews with Nicki Kinton of Confident Cashflow in which PPD is looking at the typical excuses that suppliers often hear when chasing late payments, and asking Nicki how best to handle them.
Excuse #8 – I am unable to raise manual cheques
I know cheques are antiquated these days but, in your experience, how many organisations no longer have a chequebook?
There are still a significant number of businesses paying by cheque in the UK. In 2017 more than 400 million cheques were used across the UK for both business and domestic payments and to acquire cash.
Cheques need to go through a clearing process and this may take a few days. The money isn’t taken from the payer’s bank account until the bank has confirmed there are funds available so cheques are a good way for a business to uphold its contractual obligation to pay, whilst holding on to the funds for a little bit longer.
Additionally, some businesses insist on paying by cheque because it gives the owner a sense of control.
Medium to larger sized businesses, who have a lot of outgoing payments are more likely have printable cheques rather than a chequebook and will have set print run dates.
In your experience is this generally a legitimate excuse or an effort to try it on?
It certainly can be a delaying tactic but often the internal red tape involved in getting a single cheque printed (or typed) can be very onerous and it may be quicker to wait for the scheduled print run.
Surely for a customer that gives this explanation, the simple option is to go the BACS or Direct Debit route?
Always ask for BACS in these cases. Direct Debit takes time to get set up and there are still a surprising number of businesses that are reluctant to sign up to Direct Debit as they feel it removes the control of payments from them to their supplier.
Honestly, this explanation sounds like the kind of thing that should really be clarified in advance of signing a contract. Do you think there’s any excuse for suppliers not being aware of this in advance?
I think it’s vitally important to understand from the outset of the relationship what your potential customer’s payment processes are, including, available payment methods, authorisation and key personnel involved in the process (or at least job roles).
Knowing the process allows you to tailor the timing and content of your credit control calls to get the best possible outcome.
Are there any other payment methods aside from BACS and/or DD that suppliers should consider proposing for large denomination payments from their customers?
Bank Transfers and DD are the best methods for cleared funds and once set up are easy to manage.
You could also provide the facilities to take payment by debit card or credit card, particularly for smaller businesses. I wouldn’t advise taking cash, unless for small values or in a retail environment, as that could leave you vulnerable to money laundering schemes (depending on your product or service).
I would recommend regularly (every 6 months or at least annually) writing to all customers still paying by cheque encouraging them to switch to Bank Transfer or Direct Debit. Every time you will get some that migrate, making managing receipts easier overall.
It’s also a good idea to set out your expectations from the beginning with new contracts and only accept payment by these methods as part of the contract. Cheques are not legal tender in the UK, they never have been, so you are not obliged to accept them.
Confident Cashflow offers a complete credit management solution for your business covering all the core competencies including due diligence / designing credit policies / designing terms of business / improving the accounts receivable process / ensuring compliance with consumer credit regulation and Credit Insurance Policy / establishing reasonable credit limits and payment terms and more. To contact Nicki click here.