Being paid late or not at all, for the supply of goods or services, is curbing small business growth, with some reports claiming that small and medium-sized enterprises (SMEs) in this country are currently owed around £40bn in unpaid invoices.
However, there are steps businesses can take to help with payment issues. Since 2007, the number of insolvencies has increased and it appears that people are more willing to take matters to a dispute rather than pay when pressed by their suppliers.
This puts suppliers at greater risk of not being paid – especially where, for example, the buyer becomes insolvent or disputes
The first consideration is always the T&Cs, which many businesses know someone should review, but nobody ever seems to get round to. Your T&Cs will largely depend on what you supply and how your services are provided, often shaped by how you have done business in the past.
Here are a few pointers as to what they should contain:
- Your own T&Cs are usually in your favour and you should seek to have them govern the relationship between you and your buyer – the “last shot” doctrine.
- Require money to be paid up front. A good way to do this is by way of a deposit to secure the goods or services being provided.
- If providing goods, include an adequate Retention of Title clause and mark the goods as belonging to you with your contact details, so they are identifiable in the event of an insolvency.
- Also include a condition that the buyer must keep the goods separate from other goods and/or must not use them unless your written consent is provided.
- Expressly say that although risk passes, title to the goods will never pass to the buyer unless full payment is received and that position is confirmed in writing.
- Depending on what is being supplied, you may want to include a mixed goods clause.
- Include a provision for debts owed on one contract to be offset against other contracts between you and your buyer.
- Limit the credit facility to buyers.
Always be practical when asking for payment and try to ensure you remain independent of payment regimes agreed to suit others. Ask for full or part payment up front and request payment – or the balance – on delivery where the goods/services can be inspected.
You can also discourage late payment by sending reminders and making phone requests before the final payment date. You should remind the buyer of the interest that could be charged. For buyers who can’t pay as opposed to won’t pay, consider a repayment plan.
The problem is balancing good client relationships built on credit terms often in their favour against the shorter-term gain of more restrictive credit terms. However, being firm at the outset of the relationship will set a precedent, and it’s worth remembering that taking steps to ensure you get paid is cheaper than chasing money owed.
Shanti Shah is a lawyer at SGH Martineau LLP