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Monthly Archives: April 2013

5 Simple Credit Control Rules to Follow

This is something I am always banging about in my line of work. Many of your customers will prefer to do business on credit and most will likely insist that you extend credit terms.  Under the best of circumstances, it’s unlikely that they’ll all pay on time.

By establishing and enforcing smart credit policies your business will run more smoothly and maintain a sufficient cash flow.

 

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Follow the 5 simple steps below and you will find life easier in the credit control department

Further explanations of the credit control rules:

Step 1 – Although no policy is foolproof, write a set of credit terms based on what works for your business. If you are diligent and thorough the policy should serve you well.

Step 2 – Your customer must make it clear what their legal entity is. There is a big difference to giving credit to a sole trader to an Ltd company.

Step 3 – don’t just read the trade references.  Always check the trade references are legit.  What is the point of asking for trade references if you don’t check them? Also beware of customers who won’t     complete a Credit Application Form. Are they hiding something?

Step 4 – by adding a Personal Guarantee you are giving your business additional protection should the customer’s business go under.

Step 5 – Has your customer got a good history of paying on time? You will soon know by checking their transactions in the last 6 months.

Always monitor your customers and credit terms on an ongoing basis.  Instinct is something I believe in.  If a customer is new and you have a bad feeling they might leave you with bad debt, only accept cash or Cash on Delivery. Never under estimate your gut feeling.  A customer is only a customer who pays. If they don’t pay you will be left with more than a headache

Important Changes to Late Payment Legislation

 

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The Late Payment of Commercial Debts (Interest) Act 1998 has been updated by the Late Payment of Commercial Debts Regulations 2013 which was adopted by England, Wales & Northern Ireland on 16th March 2013 and The Late Payment of Commercial Debts (Scotland) Regulations 2013 which came into force on 29 March 2013.

The Act continues to apply to contracts for the supply of goods or services where the customer is either a business or public authority and still imposes a statutory rate of interest of 8% over Bank of England Base on late payments unless the parties have agreed a substantial remedy. The Act has been amended so as to:-

Impose maximum payment periods.

If no payment terms are agreed, the default period remains at 30 days. However, payment terms must not exceed 60 days unless both parties agree and the extension is not grossly unfair. In the case of the Public Sector payment must be made within 30 calendar days of receiving the invoice.

Limit the amount of time a purchaser has to verify goods or services.

Where required, a procedure or verification period for goods or services must not exceed 30 days unless agreed and not grossly unfair to the creditor.

Increase the amount of payment enforcement costs a supplier can recover

Suppliers were already able to claim a fixed sum of between £40-£100 (dependent on the size of the debt) under the existing legislation to compensate them for the costs of recovering late payments.  The changes introduce the additional right for a supplier to claim the difference between the reasonable costs it incurs in debt recovery (eg for appointing a debt recovery company or lawyer) and that fixed sum.