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Debt recovery is usually the last thing you think about when signing up a new customer and for many companies conversion of new business is the key to maintaining a healthy and growing business.

But what if the new customers turn out to be non payers? This is why at the start of the business relationship it is important to take steps to minimise the risk of non-payment in the future.

Here are some top tips in doing so:

Know your customer
It is important to know who will be liable to pay your invoices and therefore you will need to know the exact name and legal entity of the business.

Is the business a sole trader or partnership? (if so, you will need to know full names and addresses for any individuals).

Is the business a limited company or an LLP? (If so, you will need to know the registered name and company number. It is possible a limited company may also have a trading name so take a record of both).

We highly recommend you implement an account opening form to ensure this information is provided at the start of the relationship.

Credit checks
You should always carry out credit checks at the start of the relationship to highlight any potential problems and to assist in setting an appropriate credit limit. If you do not use a credit reference agency, we would definitely recommend you investigate the possibility of obtaining this service.

Terms of Business
If you do not have terms of business in place this can impact your cashflow if payments are delayed. The certainty of terms that govern the relationship between you and your customer can avoid unnecessary additional costs when collecting debts.

We recommend the terms are in writing and are signed to avoid any misunderstanding.

Implement a credit policy
A credit policy is a set of rules that your employees can follow with clear guidelines in relation to the account opening procedure, due diligence, payment terms, procedure for payment and the frequency of statements/reminder letters.

Further protection
There are options available to give you further protection such as asking for a deposit or requesting a guarantor. If the customer is a limited company the guarantor may be a personal guarantee by the directors. These could be implemented as standard or just on a risk basis.

Invoices should be sent promptly and clearly describe the goods and or services in which the invoices relate to.

You may want to telephone the customer to ensure the invoices have been received and that there are no queries with them.

Keep detailed notes of any discussions had with the customer regarding payments of invoices including time and dates.

Be proactive
Usually, the longer a debt is left before payment is chased for, the harder the debt becomes to collect. Be proactive in chasing overdue accounts.

Take action
If a customer does not pay. Take action and escalate this to a debt recovery solicitor or a debt collection agency.

We would be happy to assist with any debt recovery enquiries you may have and provide a range of services which can be tailored to meet your needs.

This article was written by Sophie Taylor, a legal assistant in our debt recovery team. For more information, contact slt@debenhamsottaway.co.uk or call 01727 735632.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.