Ensuring A Healthy Cashflow
Martin Hughes on how to ensure a healthy cashflow
WHETHER you are a flooring contractor, manufacturer, distributor or consultant, it is vital that you have good, up-to-date terms and conditions to ensure healthy cashflow and prompt payment for the services you provide.
Many large manufacturers and distributors have experienced credit control departments ensuring the business has well-drafted terms that provide certainty, clarity and importantly reduce the risk of misunderstanding and problems with their customers.
Owners of small businesses, on the other hand, have to juggle several different roles and take on a lot of responsibility for all aspects of the business. They often cannot afford experienced credit managers and may have to spend considerable time sorting out problems when they occur.
Protect your business with up to date terms & conditions: The smaller trader may not have terms and conditions of trading, but don’t be tempted to copy someone else’s T&Cs. It is always worth seeking the advice of a commercial lawyer when it comes to writing or reviewing your terms and conditions. Getting good advice need not be expensive, but could save you money and time in the longer term.
Terms and conditions should be flexible and suitable for one-off jobs or on-going arrangements. The most obvious conditions are in regards to payment terms. However, other terms which should be applied are as follows:
Retention of title clause, to ensure the trader retains ownership of materials until they are paid for;
Limitation of liability, to limit any liability for consequential loss and protection from pre-existing defects;
Cancellation of contract, where a fee may be chargeable for last minute cancellation or where specific materials have been ordered/purchased on behalf of the customer;
Termination of contract, to determine the manner in which early termination of contract can be made on either side, or with regard to the obligations to deal with defects or final snagging lists; and
Consequences of late payment which may include the charging of interest and any collection costs by a third party.
These are just five examples of the terms and conditions which you should be considering, but there are many others which would be designed to give you maximum protection. It may be worth checking when you last reviewed your Terms & Conditions and if in doubt, don’t be afraid to seek professional help and advice.
Clear, detailed quotes can help: Always be clear and timely when providing a prospective customer with a quote or estimate.
The quote should be very specific in terms of what is and what is not included. Additional work maybe required that hasn’t been anticipated, which is also requested by the customer but no formal quote/acceptance has been given.
The trader should always ensure that he has with him a separate pad for additional work/requirements, which should be used to provide a quote and obtain the householders/business proprietors signatures in agreement. This will prevent the customer at a later date saying they thought the work was included in the original quote. The quote should also include your payment terms.
Prompt invoices and avoid late payments: It is essential that invoices are raised and sent to your customer as soon as possible. Customers have a budget at a certain time, and therefore the money may no longer be available, should delays occur.
Problems may occur at a date sometime after the job has been completed, which have no direct relation to the work carried out but for which the customer blames the trader. The longer the payment is left the more likely these issues may occur.
Non payers should be politely reminded that payment is due. If payment is still not forthcoming, the services of a debt collection agent or solicitor should be engaged.
There is a real psychology in invoicing to chasing for payment in a timely manner. When a job is first requested it assumes a level of importance and need with your customer, as time goes on that initial level of importance may be forgotten and therefore a reluctance to pay can result.
The main thing to remember is that at the time of asking for a quote, unless it is fraud, the customer intends to pay and has the means to pay. Both can alter with time and the longer you wait the more likely minor hiccups in the work become apparent and lead to a reason not to pay, whereas if payment has already been recovered remedial work can be carried out without problem.
Don’t delay or waste your time chasing a persistent late payer – generally a solicitor’s letter can obtain payment without further action. Should proceedings be necessary and if there is no dispute over the contract or quality of the work the action can be carried out in a very cost effective manner, with costs recoverable from the debtor, assuming he has the ability to pay.
Spratt Endicott Solicitors can help businesses of all sizes make certain they have the right terms & conditions to ensure a healthy cashflow, and we can also quickly assist in debt collection, resolving problems with late payers or any other disputes that arise.
Martin Hughes is a non-lawyer partner and head of the debt recoveries department at Spratt Endicott Solicitors in North Oxfordshire. He has over 40 year’s credit management and debt recovery experience and is a member of The Institute of Credit Management.
T: 01295 204131
This article has been reproduced from the Contract Flooring Journal website. You can find them at www.contractflooringjournal.co.uk.