late payers

[silverdaler]

as asmall business i am having probems with a few customers who insist on paying extremely late, even though they already get 60 days credit. i'm sure i read about some legislation whereby i can charge interest on their debt. anyone know about this, what percentage etc. we do not have a contract with these customers, just a note on the invoice saying payment due in 60 days.cheers

[mightyWBA]

As a fellow small business owner I know all about late payers! There is legislation where by you can charge interest.However you have to get your clients to sign an agreement first!

The biggest problem is you may lose the client,or they don't sign ,so then you can't charge!

My only advice is if you are in a position to pick and choose do so,otherwise sit and suffer,like we do!

The only other thing we do is put a credit limit on those who give little confidence.

[gammaray]

If you add a paragraph to your terms and conditions about debt interest your clients agree to it automatically when they commit to using your services. You obviously need to send out the T&C with order confirmations and in the case of existing clients, add a note to the order conf. that directs them to the new paragraph. You can't apply interest retrospectively though, only on new debt.

What you need to weigh up though is the cost of administering the new system against the interest charged. It's often not worth it, and in my case, certainly didn't improve client payment sheduling.

What I did find useful however with one particular serial late payer is handing the debt to a debt factor, who chased the debt on my behalf. They add their costs to the invoice and the client payed very swiftly (you need to warn the client of this action before hand). It did sour our business relationship however but frankly the loss of his business was nothing compared to a stress free day not chasing his debt.

[Oneeyedvic]

why not look at factoring - let the factoring company chase the debt for you. They will run a complete credit control for you including chasing the debts. You get your money on day one. The costs of this are relatively small compared to the headaches of credi tocntrol. Try here: http://www.factoring-made-easy.co.uk/

[stanleyman]

One answer I found always worked was to give a discount for prompt payment, no more than 30 days. It certainly improved cashflow and you can cover the cost by increasing prices. Paying up front is worth trying especially with retail customers. What you have to remember is that a late payer is earning interest on your money so they need an incentive to pay quicker.

[rugeleyboy]

DO NOT FACTOR!!!!!!!!!!!!!!!!!!!!!!!

i have a small transport company that rellys on factoring.this is one of the worst desicions i have ever made and no doubt it has ruined my business.

the only people who will reccomend factoring are the factoring company and your bank manager!! this is because he gets paid for introducing you!!

i had 10 vans on the road and i got took for a lot of money by 2 companys, the factoring company demanded their money back off me when they found out!! thats all i needed when i was facing bankrupcy!!

i have another business aswell, and now when people who owe me money dont pay me, i knock on there door, whether it is there house or business!! i pester them untill they pay me!! its my money, give it me!!

others may say this is a bit caveman and unproffesional,but i have no one who owes me money over its due date, all of my customers are repeat customers, and they all laugh at me when i collect the money!!! thats right.... they laugh at me when i collect the money!! but they still come back!!

a vital lesson was tought to me on this occasion, if they are bad payers,get rid of the customer and get good payers!!!

[Bev2006]

Silverdaler - I sympathise.

You can charge interest on late payment of debt using The Late Payment of Commercial Debt (Interest) Act 1998. It suggests that a reasonable rate is 8% + bank of england base rate (ie c.12.5% total). This is applied to the gross value of the debt (ie including VAT) but you dont charge new VAT on the invoice for interest. If they still dont pay you can send in new invoices for interest on teh interest......

Ive used this twice as a last resort and both times got the debt paid so quickly that I issued a credit note for the interest (as a goodwill gesture).

[gammaray]

Factoring has worked for me in the past. It sounds as if rugeleyboy, was dealing with dodgy debt collectors.

[rugeleyboy]

lloyds tsb, gammaray?

still locked in with them now, even though i have only 1 van now. i just cant afford their buy out rates yet?

[Oneeyedvic]

I would just say that there are a lot of different factoring companies - some good, some bad. Just as with every business you will always find people having hassle with a company.

It may interst you to know that a lot of factors now have only 3 month minimum terms, so you can get out of factoring easily.

[rugeleyboy]

yes oneeyedvic, it is 6 months with lloyds tsb,

the downside to factoring is that it becomes addictive, you need them more than they ever need you.

since i had trouble with my business,i have not been very cash rich, this is why i am still with them and i cant afford to get out myself!

[Oneeyedvic]

I agree that In a similar way to any credit, factoring can be addictive. A lot of companies I deal with (as a finance broker) are constantly in their overdraft facility - which is really not a lot different to factoring.

At least there is no second charge over your home with factoring.

[rugeleyboy]

my bank manager guided me to factoring a few years back, at the time i had no other choice,i was owed thousands and my cash flow was real bad!!

as i said before, when i got into trouble via other people going bust on me,the factoring company were the first in line for money,they thought i was going under aswell, fortunatley, i didnt,but through no help from them!!

it costs me over �2500.00 per year now to factor my invoices, bearing in mind, this business is a secondry business which has a measly turnover of �36,000.00.

[silverdaler]

thanks for all your input everyone - its certainly a very emotive subject ! i have just had the bank of scotland offering ' invoice discounting ' which i believe is similar to factoring. there is an option to insure the debts aswell so that if a customer defaults the debt is insured, but i dont know how much that is yet. i have also found some info off a solicitor called the Late Payment of Commercial Debts (Interest ) Act 1998. anyone ever used this ?

[Oneeyedvic]

Factoring sounds more like what you want - this involves using the finance companies credit control - invoice discounting is if you have your own ccredit control (and it sounds like yours isn't great).
Whilst some of the bigger companies (like Lloyds, RBS etc) may be cheaper, their service is not as good as some of the smaller companies - eg with one factoring company you get your own person who calls the debtor in your name before the invoice falls due (eg day 45) to remind the customer that it is due. Bigger institutions will just send out the usual letters / statements.

Really would recommend getting a few different companies in - or use the services of a finance broker who will know what the best deals are for your industry / position.

Sorry - have never used the legislation you mention.

[auzzie]

Why aren't you giving them seven days notice to pay and then to small claims. Don't mess about. As soon as the debt is due, send a reminder. A week later and if no payment received send a 7 day letter. In this letter you give them 7 days to pay or court action will be taken. It is very easy to go to small claims, i believe it can be done on line now and you can claim interest payments too.! I, as a freelance bookkeeper have done it several times and not had to appear in court.

[auzzie]

Re Late payment of Commercial Debts (interest) Act 1998. I have used this once and suceeded on getting this payment, only when this was taken to the small claims court. We had new invoices printed stating that "under the 1998 late payment act,we would reserve the right to charge interest of 8% above the Bank of England base rate on all late payments. Interest will continue to accrue until the debt is paid in full." You would then have the right to recover this interest, but only on new customers or old customers who have signed an agreement to it.