This is a series of Q & A interviews with Nicki Kinton of NK Credit Consultancy 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 #7 – I dispute the payment

 

What does this usually mean? That the amount is disputed or that the entire premise of the invoice/payment is disputed?

This is vague enough to mean anything! In my experience it’s most likely to mean one of the following:

  1. A pricing dispute
  2. A quality dispute
  3. A delivery dispute

 

This excuse sounds like a delaying tactic to tie up the supplier in a dispute while delaying payment. Is that often true?

Pricing and delivery disputes are more often genuine, though not always in the customer’s favor. Usually, there has been some misunderstanding over the price quoted, perhaps your pricing is on a sliding scale tied to quantity and the customer has ordered a different quantity than usual. Or you may have recently introduced price changes which have not been updated in your customers’ systems.

It may, however, be an error on the invoice. This often occurs when your customer is on non-standard pricing tariff and you accidentally use the standard pricing on the invoice, or a promised discount hasn’t been applied.

There’s much that can go wrong with delivery from incorrect quantity delivered to damaged goods or a dispute over the delivery charge.

However, disputes over quality can be quite subjective, particularly with services, and are often a delaying tactic.

 

Presumably the presence of a solid paper trail is vital in resolving issues like this?

Most definitely. Quotes should be sent in writing and acceptance should be received in writing, even if this is done with an email confirmation following a verbal quote and acceptance.

If the query has arisen because of a pricing change, having a document trail of when and who was informed of the changes helps to resolve the issue quickly.

Delivery notes should all be linked to an invoice and all deliveries should be signed for. Where possible goods should be inspected before accepting a signature, not so easy to control if you’re using a third-party delivery service.

Your terms and conditions should be very clear about quality and what the customer has a right to expect from you.

 

How often do these kinds of dispute end up in legal action?

Very few in my experience. Possibly because of the desire to maintain goodwill, particularly in the case of pricing or delivery queries.

 

In your experience what are the best ways to resolve this kind of dispute without a major falling out?

Most importantly, investigate each query and act on it quickly. If the same sort of query is occurring regularly revisit your processes and controls to see what needs to be done to stop it happening in the future.

Have a transparent dispute resolution process, which include timeframes and keep the customer updated regularly with the investigation.

Prevention is always better than cure!

Always be open and honest with your pricing. If you are giving estimates instead of quotes be sure to be very clear with your customer the basis on which you have to provide the estimate and the likelihood of, and possible reasons why the actual costs could be more than the estimate. Keep your customer informed at all times of issues likely to affect the cost.

Be clear in your communications with customers about your prices; are they inclusive or exclusive of VAT, what other costs may be involved (e.g. delivery charges), are they subject to change and under what circumstances?

Set expectations regarding quality within your Terms & Conditions and communicate regularly with your customers so that any quality issues are picked up quickly and not left unidentified until it’s time to pay.

If you do everything you can to resolve a dispute fairly and equitably the relationship with your customers should remain intact and may even improve if they see you to be delivering great customer service under testing circumstances.

 

NK Credit Consultancy Ltd 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.

This is a series of Q & A interviews with Nicki Kinton of NK Credit Consultancy 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 #6 – Currently in the process of switching bank accounts

 

Really? How often does this happen?

It does happen, and more so these days with the BACS Current Account Switch Guarantee for individuals and small businesses ( under 50 employees and Turnover not exceeding £6.5 million).

 

Switching bank accounts sounds like an administrative quagmire, how long does it take to complete the process?

Since 2013 the major banks have all agreed to complete a small business bank account switch within 7 days. Small businesses can use the Current Account Switch Service managed by BACS and the new bank manage it all for you (there’s some form filling to do before hand). There should be no loss of access as the new account is opened prior to the switch date and everything transfers on that date.

For larger businesses the process should be very similar but without the Current Account Switch Guarantee and may a little take longer if they have a number of accounts and processes, such as direct debit, to move over.

Because the new bank account is set up before the old one is closed businesses can ask their customer to pay into the new account before the switch takes place, whilst all their payment data is still attached to the old account until the switch date.  This has implications for being able to make payments if funds are going into a different account and could be the reason for any payment delays.

Also, whilst the process with the bank may be relatively straightforward, sometimes updating antiquated legacy systems to interact with the new bank can cause delays.

 

Surely switching bank accounts can’t be an impediment to cashflow otherwise it would affect incoming funds as well as outgoing funds wouldn’t it?

As mentioned above, cash inflow isn’t a problem if you’ve informed your customers of your new bank account. For the small business switches, the old bank will automatically transfer receipts made to the old bank account after the switch date. For larger businesses they will probably need to keep the old account open for a period to capture any customer payments that are still made to that account and manually transfer.

Switching accounts shouldn’t delay payment for more than a few days. If you are being told otherwise either it’s all gone horribly wrong (unlikely) or they’re stalling.

 

What can a supplier counter with when faced with this explanation?

This is always a difficult one and really depends on the relationship you have with the customer and their value to your business.

You could suspend any future work until the situation is resolved and you should remind your customer of any late payment penalties.

Consider requesting a credit card payment. That has no impact on the bank account (until they need to pay the bill) so should still work.

If you’re prepared to wait then ask your customer for the exact date the switch will be complete and arrange a date for payment. As mentioned above, this should be no more than a few days.

 

 

NK Credit Consultancy Ltd 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.

This is a series of Q & A interviews with Nicki Kinton of NK Credit Consultancy 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 #5 – Cheque is in the post

 

This sounds like a classic delaying tactic, based on your extensive experience how often would you say it’s likely to genuinely be the case?

It’s probably the most popular fob off in the book. Not helped by the fact that there’s a general perception that the postal service is unreliable and underperforms, therefore supporting the assertion that it’s at fault.

 

Assuming it is a stalling tactic, what should be the supplier’s next move?

You should ask for the date sent, by what class of postage and the cheque number. Of course, they can’t provide the latter if they’ve not sent it! If they can’t give you the cheque number ask why not? You may get some interesting reasons, be prepared to challenge them by asking if it really has been sent yet.

The post can be unreliable at times, if I were trying to delay payment my next play would be to suggest the cheque got lost in the post and to wait a while longer.

 

What can a supplier do to counter this kind of persistent delaying tactic?

This depends on how long ago the customer is suggesting they sent it. If only a couple of days then agree to wait a couple more (with the above details obtained). If it’s been more than a week then ask them to cancel the cheque and send a replacement BACS/Faster payment with the assurance that you will return the cheque to them or destroy it should it ever arrive.

 

Direct debit or bank transfer both seem like obvious work arounds but what if a customer refuses to go that route?

Unfortunately, even in this modern electronic age there are still many businesses that insist on paying by cheque. These are usually business were the owner/director feels more in control of their money by having to physically sign a piece of paper to make a payment. BACS doesn’t have quite the same feel of control and Direct Debit means relinquishing control completely!

This applies to consumers too, particularly more “senior” customers who may not be so comfortable around electronics and the internet, though this is lessening.

You have every right to refuse to accept cheques, but with that decision you have to accept that there will be some businesses or consumers who won’t want to buy your goods or services because you don’t. You need to look at your customer demographic and decide if the loss of a few late paid cheque payments would have a significant impact on your business.

 

Are there any circumstance in which a cheque might be a genuinely better mode of payment?

I really can’t think of any. With the advances in online and mobile banking you should be able to pay for just about anything, from anywhere. I can’t remember the last time I wrote a cheque.

A perceived advantage from the buyers’ perspective is that they delay payment, because funds aren’t taken out of their bank account until it’s presented at the bank. So even if they pay you on time, you don’t get the funds on time.

From the sellers’ perspective cheques are easily lost, do not represent cleared funds so can bounce and mean you have to physically go to the bank to pay them in.

 

NK Credit Consultancy Ltd 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.

This is a series of Q & A interviews with Nicki Kinton of NK Credit Consultancy 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 #4 Our payment terms have changed

 

This seems like a mechanism used by large companies as a means of hanging on to cash for longer, is that a generally fair assessment?

Not just larger companies, though it a more common occurrence coming from larger businesses.

 

 

How is it even possible for payment terms to change halfway through a contract?

It’s not unusual for parties to want to vary the terms of an existing contract. Circumstances change, markets change and contracts need to be responsive to those changes.

That said, one party cannot arbitrarily decide to change the terms of a contract. Any amendment is considered by law to be a contract and needs to be agreed by both parties. If one of them does not agree to the changes, then they will not be enforceable.

 

 

What should a supplier do if payment terms change without having first formally agreed terms?

If you have not formally agreed terms then you have put yourself at risk of uncertainty and misunderstandings. Trading without having any defined agreed terms can create implied acceptance, i.e. by trading you have accepted the terms under which that transaction took place.

If something changes, such as payment terms and you continue to trade then implied acceptance could also apply, therefore it’s important to use this opportunity to step back and negotiate terms that are appropriate for both parties.

Be prepared to walk way from the relationship if the new terms would create a level of risk that is detrimental to your business.

 

 

Is it possible for payment terms to be changed even after they have been agreed?

As mentioned above it is possible for either party to propose an amendment to the existing contract, however for that amendment to be enforceable it need to be accepted by both parties.

Acceptance should be express acceptance, i.e. written acknowledgement of the changes and the willingness to abide by the changes.

Remember if you continue to trade after the new payment terms have been brought to your attention that could be considered as implied acceptance.
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What would you say is the best way to avoid this situation from the outset?

  1. Always make sure that you negotiate terms with any supplier before you start doing any business with them.
  2. Have them in writing and signed by representatives of both parties.
  3. Make sure that all involved in the payment process are made aware of these terms before the first payment is due.
  4. Have regular reviews with your customer, that way if something is happening in their business that may prompt them to look for a change in terms you are already aware and could be in a position to offer an alternative solution if you can’t accept the change in terms.

 

 

NK Credit Consultancy Ltd 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.

This is a series of Q & A interviews with Nicki Kinton of NK Credit Consultancy 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 #3 Can’t afford to pay the bill

 

 

This excuse seems pretty desperate. Do you think it’s a generally credible explanation?

This often a very difficult thing for a business to admit to. Some never do, preferring to bury their head in the sand, and end up in terminal decline and insolvency very rapidly.

Circumstances can change rapidly for a business. The loss of a major client or a sudden hike in costs will have a dramatic impact on a business’s cashflow.

Unfortunately, as always, there are businesses out there who will buy from you knowing they can’t afford it. Effective due diligence should weed these ones out but there are always some that slip through the net.

 

 

I have seen ratings for companies on PPD where this explanation was given yet they continue to trade. Surely this can often be just a temporary state of affairs, can’t it?

Often it is temporary, and as a supplier you can earn a lot of customer loyalty by being supportive through this difficult time for them.

Talk to your customer about their situation. If you feel they are being honest and open with you and you believe it is a temporary situation you don’t need to pull the plug on your relationships with them.

Look at the customers financial statements. If you don’t understand them that’s fine, ask someone who does to give you an assessment of the ratio of their debtors compared to their sales. If they’re being paid very slowly, causing them cashflow issues, debtors will be a significant proportion of their sales.

Offer them a payment plan to clear existing debt with the understanding that any business transacted whilst there remains a debt will have to be cash with order. They may need what you’re supplying to trade out of the situation.

Once the original debt is cleared, review your customers circumstances again and agree new terms for moving the relationship forward.

 

 

If a customer really can’t pay the bills and is in terminal decline (possibly due to late payment issues of their own), what do you advise creditors do?

Firstly, stop supplying, don’t make the problem any worse.

Agree a payment plan to reduce the debt.

It may be tempting to try and support the business as you would if you believed the situation to be temporary, but be aware that if their business fails you don’t want yours to be taken along for the ride.

If they are keen for you to continue to supply because they need what you have to keep trading, establish what their plans are for getting out of the situation. If these seem viable and you really do want to support them protect yourself with robust terms for the foreseeable future, which must always include payment with order.

What should creditors do if they only find out once the company has gone into liquidation, such as in the case of Carillion, and assuming there is no hope of govt. support?
In all insolvency cases there will be an opportunity for creditors to submit a claim. Make sure your invoicing is up to date and that any invoice queries have been resolved before submitting your claim. That will make sure that it truly represents what you are owed.

If you are not contacted by the Liquidator and invited to lodge a claim it may be that you are not listed as a creditor on your customers records. Look up the liquidator on Companies House, call and ask for a claim form. Don’t miss out.

By submitting a claim, you will be kept informed of the details of the liquidation. The likelihood of receiving all your money is very low, but It is possible you may receive a small dividend.

 

 

What would you say is the best way to avoid this situation from the outset?

Know your customer and have regular communication with them.

Many small businesses are guilty of trading with whoever wants to buy their stuff. Others will undertake some form of due diligence, such as a credit reference agency report, at the start of the relationship.

This isn’t enough. As said before, circumstances can change at the drop of a hat and you need to have your finger on the pulse so you know when those changes happen. Most credit reference agency’s offer a monitoring service, which will alert you to things like changes of directors, the issuing of County Court Judgements or the late filing of financial accounts at Companies House. All of these things can be indicators of trouble. Keep an eye on local news and social media and listen to the grapevine of your network.

If you see or hear anything that may indicate a potential problem discuss it with your customer and establish what sort of impact it could have on you. Use their responses to decide whether to keep trading with them and if the terms need to change to reduce the risk to your business.

Giving another business time to pay is like giving them an interest free loan, so don’t give your money away to just anyone.

 

 

NK Credit Consultancy Ltd 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.

This is a series of Q & A interviews with Nicki Kinton of NK Credit Consultancy 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 #2: Accounts clerk only comes in once a week

 

 

How often do you hear this excuse when managing credit control on behalf of your clients?

This is another common response particularly from smaller businesses.

When you think about it, a small business owner can’t do everything, and if they are trying to you’re probably encountering Excuse #1. But the business may not be big enough to have a full-time member of staff in every role so it is inevitable that you will encounter this situation if you are trading with smaller businesses.

 

Is it a legitimate excuse?

It’s a fact.

That’s not to say that there shouldn’t be some provision in the business for making urgent payments on the days the accounts clerk doesn’t work. Of course, you need to convince the business that you can’t, or shouldn’t have to, wait the 1-4 working days for the accounts clerk to next be in the office to get paid.

What would it cost your business if you waited those few days and what would it cost the relationship if you insisted on someone else making that payment there and then? The answers may depend on how overdue the invoice is and how many times you’ve already tried to obtain payment!

 

In your capacity as a credit management consultant who might also be on the customer’s side of the fence, what advice would you give suppliers to make sure they don’t keep missing the boat every week?

Find out which day of the week is the accounts clerk’s working day and plan your call for that day. Make sure you know the hours worked as well as the day of the week and get direct contact details.

When you know you have invoices falling due on their non-working days call them before they fall due to make sure everything is in hand.

 

What should a supplier do if they can’t get through to a busy accounts clerk that only comes in once a week?

Firstly, support your calls with an email, sent the afternoon of the day before their working day so it’s fairly near the top of their Inbox when they get in.

If you consistently can’t get through, despite having a direct dial phone number then escalate to the buyer, the business owner or the relevant department head and explain your inability to make contact. Outline what you need to happen, and arrange how to follow up in the most appropriate way.

As with all collections calls it’s important to keep your frustration out of it, stick to the facts and you are more likely to get the result you want. Show your frustration and you are likely to be met with defensive aggression.

 

Part time / consultant accounts clerks are hired for their expertise and time saving benefits, what if the customer keeps referring the supplier back to the accounts clerk?

This is a performance issue for them to manage and it’s ok to remind them of that (politely!).

Make it clear that you are only asking for them to work to the terms you both agreed to prior to any supply of goods or services. Remind them of their responsibilities according to the terms and ask them to advise why the accounts clerk is unable to meet those responsibilities. Often the customer has failed to communicate terms to the person responsible for making the payment!

You should also remind the customer of any provisions in the terms around late payment, such as the charging of interest and that their intervention will keep any additional costs to them in check.
As before, persistence is the key, regular, non-confrontational communication builds familiarity and rapport.

 

 

 

NK Credit Consultancy Ltd 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.

This is a series of Q & A interviews with Nicki Kinton of NK Credit Consultancy 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 #1: Accounts are too busy

 

How often do you hear this excuse when managing credit control on behalf of your clients?

It’s quite a common response from smaller businesses when the person responsible for paying the bills wears more than one hat in the business. There isn’t an accounts team, just a person who does the accounts and they are probably focused on one of their other responsibilities at the time you call if you get this response.

 

You may also find that in some larger organisations the accounts payable team don’t take calls at certain times of day because the staff are focused on a particular task, such as query management or the payment run.

Unfortunately, though, sometimes it’s just an avoidance technique.

 

Is it a legitimate excuse? (It doesn’t seem so)

It’s easy to feel that you’re being fobbed off and that it’s not a legitimate excuse, but there will be instances, consider the scenarios mentioned above, when they really can’t talk to you at that time. You need to ask questions to see if it’s really true but remember never outright accuse a customer of being a liar!

 

What should suppliers do to ensure that accounts departments are not “too busy” to pay their bills?

It’s not up to you to make sure they’re not “too busy” to pay their bill. That’s up to your client’s management.

What you can do is check if this is a one-off situation or a regular ‘we’re not taking calls’ time and establish when would be the best time to call.

Get a specific contact name, a direct dial number and email address. Whilst we shouldn’t rely on electronic communications for collections activity it’s sometimes a useful way to get attention.

Consider the first scenario above. If the person who does the accounts is also the owner manager of the business they may well prefer email as they can deal with it outside of normal working hours.

Try calling on different days and at different times. Don’t forget to keep a record to keep track of the days and times so you don’t waste your time repeating the same ones. If you get the same excuse no matter when you try that’s a fairly good indication the customer is either stalling you or is incredibly disorganised!

Escalate! If the accounts team are not taking your calls, escalate to the FD or other Exec. Ask whoever you are speaking to or Use your sales teams’ relationship with the buyer to get information on the customers hierarchy. Again, get names, direct dial phone numbers and email addresses. Sometimes just asking for this information will be enough to “un-busy” the right person.

If they won’t give you the information you could try looking it up on their website. If it’s not there call reception and leave a message for the FD/CEO. You may not get the call back from the FD or CEO you tried to call but they may go and ask their accounts team why they are being hassled about an invoice!

In the end persistence is key. Regular and frequent. Just trying to call once a week will not be enough.

 

NK Credit Consultancy Ltd 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.

We recently came across another instance in which a supplier provided work to a customer and was paid late….

The explanation given?

The customer had not been paid by some of their suppliers and cashflow was tight.

This is an entirely understandable state of affairs, after all figures from the Labour party show something that we already know, namely that SMEs also pay their suppliers late, in fact Labour’s figures indicated that about 160,000 small firms were forced to pay their own suppliers late because of delayed payments.

Empty pockets

Not being paid is no excuse for not paying unless otherwise pre agreed.

But, that still isn’t a valid reason for passing the debt down the chain, especially if there is no relationship between the customer’s upstream and downstream workflows.

Even if there is a relationship and it’s all part of a larger contract, as it so often is in the construction industry, there is still no excuse for passing the debt down the chain unless this is explicitly written into the contract.

Suppliers need to be aware of this and call it out in no uncertain terms if they are hit with this explanation for late payment.

In the even that they are, a polite and clearly written email is a good place to start. Wherever possible it also helps to give the customer the benefit of the doubt and offer to help, (not least because it’s good karma).

An example of the kind of email you might write is as follows:

Dear xxxx

Our terms are 30 days, they are not linked to other related or unrelated contracts that you have with your clients. To the best of our knowledge the work we did was not in any way linked to work that you subsequently delivered to any of your clients / customers subject to our output. On that basis we do not think it is fair that payment of our invoice should be held up by incoming payments at your end. [Optional sentence: However, we appreciate that cashflow issues can be difficult to juggle and so we are happy to extend payment terms until the xxx of the month. We hope you will be able to ensure payment is made by that time.]

I look forward to hearing from you at year earliest convenience…”

It’s worth getting something like this down in writing because in the event that you may want to take the matter to court the judge will want to see evidence that you made efforts to resolve the issue in a reasonable manner before resorting to legal action. (For more on preparing to go to court read our interview with David Walker of Grid Law Solicitors.)

Also, when communicating with a customer in any way relating to an issue of late payment, always form your communication with thought in the back of your mind that one day it may need to be read by a judge. That means, don’t get hysterical, threatening, casual with the facts, hyperbolic, or anything else that might cause the judge to have doubts about the credibility of your claim. Stay rational and stick to the facts.

If you follow that basic rule of thumb when you communicate with your debtor you will find that your words, written or spoken, will carry far greater weight and possibly even result in a positive outcome without any unpleasantness.

Payment sentiment improvements

Over the past six months user of The Prompt Payment Directory have seen sentiment improve

Users of the Prompt Payment Directory have seen payment sentiment rise over the past six months.

On The Prompt Payment Directory suppliers can, using a 5 star scale, rate the payment practices of companies they have done business with, we refer to this as the PPD Score.

The PPD Score is an amalgam of other rating scales that ask three fundamental questions:

  • Is the customer likely to pay on time?
  • What is the customer like to do business with?
  • Would the supplier like to continue working with the customer?

 

One of the main reasons why suppliers prefer not to speak out about poor payment practices is the fear of loosing a piece of business. This suggests that in many cases while a customer may be a late payer the supplier would still rather continue working with them in spite of the risks to their business – suppliers to large supermarkets are a classic point in case.

However, in many cases customers might not intentionally pay late, administrative burdens or errors at either end can cause hold ups. In these instances the supplier might just need to work with a willing customer to find a way around the problem, again not a relationship worth risking.

PPD Score data from the last six months reflects this notion, it broadly shows that as the ‘payment’ score goes up and down over time so to do the ‘relationship’ and future business’ scores.

However while the correlation between the ‘payment’ and ‘relationship’ scores is a very close match it’s not such a close match with the ‘payment’ and ‘future business’ scores. Meaning that while in some cases a payment score may be low and can affect the business relationship it doesn’t necessarily dent the desire to continue working with the customer.

 

Payment sentiment tracker

Over the last 6 months The Prompt Payment Directory has tracked an improvement in “payment sentiment” among its users.

 

Having said all that, when you look at the kinds of explanations given by customers to account for late payment they paint a familiar picture. Some simply don’t give an explanation but obviously where a customer says they can’t afford to pay, there is cause for concern.

 

Explanations given for late payment

Time and again the same explanations given by debtors to suppliers crop up when explaining late payment.

 

 

 

 

 

 

 

 

 

 

Disputes after a contract has been agreed seem unreasonable but disputes can occur for many different reasons and there will always be two sides to every dispute.

Non payment as a result of issues further up the supply chain should really be an issue that is dealt with in the contract beforehand.

Accounts being too busy is a little rich, it’s the job of the accounts department to pay bills.

Changes in payment terms should also be dealt with at the contract level i.e. ensure that no changes can occur during the contractual period.

“Invoice has been lost” does sound dodgy, but if a PO is required and not quoted on the invoice then even this excuse can be legitimate.

 

To read more about  these kinds of excuses and how to address them read the PPD guide here.

In the fourth of our series of interviews with David Walker, owner of Grid Law and author of Cash Flow Rescue, we talked to him about the ins and outs of settling late payment disputes in court.

Often considered the ‘nuclear option’ David talked us through how to navigate the process. Read on to learn what he has to say.

 

PPD: What would you say to people who are worried that the costs of going to court outweigh the benefits?

DW: The first thing I would say is that you should take all emotions out of any decision. You need to make a commercial decision that going to court is in the best interests of your company, not an emotional one that is more about “getting back at” your client who hasn’t paid. That means you must keep a close eye on costs.

For any claim under £10,000 it is likely to be dealt with as a small claim which means that there are unlikely to be any awards of costs on either side. This means that if you use a solicitor to fight this for you, you will be unlikely to get their costs back, even if you win.

However, the small claims procedure is relatively straight forward so you should be able to represent yourself and not incur any solicitors costs. My book, Cash Flow Rescue, takes you through this process step by step.

 

PPD: In chapter nine of your book, Cash Flow Rescue, you say that going to court is risky, if that’s so why is it worth doing?

DW: There are never any guarantees when going to court. I’ve seen really good cases fall apart when a witness gets nervous and then confused over the evidence they are giving. Although a judge may offer some leniency to someone representing themselves, you still have to prove your case and if you can’t do that, the judge won’t make the order that your client has to pay.

Having said that, if there is no good reason why your client hasn’t paid, then they won’t want to stand in front of a judge and explain themselves. So then the risks are well worth taking because the client has far more to lose by going to court than you do. But remember, it is vital you remain dispassionate when assessing their reasons for not paying.

 

PPD: Is taking a claim to court an expensive process from an admin perspective?

DW: It can be if you haven’t done this before and you’re trying to figure everything out. However it doesn’t have to be. The main thing is to be organised, clear and concise. Stick to the facts and don’t get drawn into long convoluted arguments. This is one of the reasons I wrote the book and produced Cash Flow Rescue – I wanted to make the process as quick and easy as possible.

 

PPD: If going to court, can one reasonably expect to recover the full amount plus expenses?

DW: For an unpaid invoice it’s usually either due or it’s not. If it’s due then you should recover the whole amount. The judge will usually only reduce the amount awarded if, for example there was an argument about the quality of work produced, or for example you massively exceeded a quote for the amount of time you would spend on something.

In terms of expenses, you should recover the court fee and you may also get some interest, but those are the only likely expenses you will recover.

 

PPD: How likely is it that a complainant could end up losing and paying the defendant’s costs?

DW: If it’s a small claim (under £10,000) and you lose then you shouldn’t have to pay the defendant’s costs. Costs are always at the discretion of the court so if your behaviour was really unreasonable, then there is a risk you could receive a costs order against you. The same of course goes for the defendant.

 

PPD: How do you set about calculating the amount you should claim in court?

DW: Most of the time you will be claiming your unpaid invoice(s), plus interest and your court fee. Your contract should say what interest rate you can claim. For example it may be 3 or 4% above base. However, if it is a B2B (business to business) contract and you haven’t said in your contract what the interest rate should be, you could claim interest at 8% above base under the late payment legislation. The late payment legislation also allows you to claim a fixed amount as compensation of the late payment.

Up to £999.99 you can claim an extra £40;

£1,000 to £9,999.99 you can claim an extra £70; and

£10,000 and above you can claim an extra £100.

 

PPD: You say in your book that preparation before going to trial is vital, what would you say are the most important areas to cover off?

DW: In the lead up to trial, the court will have given directions on what both parties should have done. For example, the court may have said that you must file all of your evidence at court in advance of the hearing. Make sure all of these directions have been completed. If there is something you can’t do because of the defendant not complying, make sure you have done all you can to comply.

The court will expect you to have at least tried to settle this before going to court, so as much as there may be a huge amount of bad feeling between you, give it a go. Even if you think the defendant won’t engage in discussion, at least show you have tried.

Then make sure you know your case inside out and back to front. Make sure that if, for example, the judge asks for a copy of your invoice or your contract you can give it to them straight away. If the judge asks how you have calculated your interest, make sure you can explain it.

 

PPD: How best would you advise people to prepare for their day in court?

DW: On the day of the hearing, you’re going to be nervous. This is completely natural. Going into court is a step into the unknown for most people, but believe me, it’s not as bad as you will expect!

The chances are the hearing won’t be in open court, it will probably be dealt with in the judge’s private chambers and it will be just you, the judge and your client there.

Beforehand, make sure you know where you are going and make sure you have plenty of time. Getting stuck in traffic is never good for the nerves and it won’t be accepted as an excuse.

At the start of the hearing the judge will probably ask you what this case is all about. Rather than having to remember it all, there is nothing wrong with having some notes to refer to. Think about what you will say to prove your case and explain to the judge what evidence you have got to support your arguments.

Try to avoid giving opinions unless you can back them up with evidence and stick the the facts rather than claiming something is unfair.

Think about it from the judge’s perspective. How can you make it easy for them to understand this case and decide in your favour.

 

PPD: How long does it take for the judge to pronounce a judgement?

DW: You should get an immediate decision at the end of the hearing

 

PPD: If the complainant wins will the CCJ go against the defendant’s company name or the director’s name?

DW: It will go against the name of the defendant. So, if you are claiming against a company, it will be the company. If you are claiming against a sole trader, it will be the sole trader personally.

 

David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry – advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights. David set up Cash Flow Rescue as a low cost legal alternative for small businesses with debt recovery problems.