As anyone in business will testify, ensuring you receive payments due in a timely manner can be challenging at times.
We thought we’d summarise some important considerations and checks you should take before you offer credit to a new client, which should help smooth the process.
Know your client
Are they trading as a sole trader, partnership, limited company or another type of entity? It is important to know who you are dealing with and be sure to have the correct and complete company name on the contract and on invoices. If they use a “trading as” name, include that as well.
This will also help you if you do ever end up needing to make a claim through the courts, or if the pre-action protocol for debt claims process applies. This will apply to debtors who are sole traders; you can read more about this here. https://thesheriffsoffice.com/articles/pre-action-protocol
Companies House can be an incredibly useful tool for checking information such as where the business is officially registered, who the directors are and which other companies they are involved with, past and present.
Their company data will also show any mortgages and previous company history, including whether they file accounts on time or applications to wind up the business.
This can all be accessed online here.
When you open a new account with a client you should also ensure you have carried out a proper credit check. To do this you may want to use a third party such as Experian, Credit Safe or Red Flag Alert.
This will enable you to decide how much credit you wish to give them, and this could in turn influence the payment terms and conditions you are prepared to offer to them.
Payment practice reporting
The government introduced new legislation requiring companies fulfilling certain criteria to report on their payment practices. This can also give you a good indication of things like the average time for invoices to be paid.
You can read more about payment practice and performance here.
Does your client have assets?
It might be worth looking into how long a business has been operating, as it can be difficult to enforce a judgment against a client with few or no assets to seize.
In some circumstances where you can’t be sure the company has assets, it will be worth considering asking for a director’s guarantee which will offer a degree of protection. You can read more about these here.
Finally, any agreements made should be made in writing so there is record of any obligations or financial arrangement that have been put in place; this should include payment terms and bank details.
David is an authorised High Court Enforcement Officer and our Director of Corporate Governance