Perform credit checks on new customers
Before taking on new customers, consider running credit checks. Credit checks help businesses (especially smaller businesses) make informed business decisions. By running a credit check on prospective customers you can find out information about their financial behaviour, credit payment history and whether they have any court judgments outstanding against them.
Credit checks can be carried out via an online search.
Agree clear terms and conditions of payment
Ensure that every customer is issued with a tightly drawn agreement or terms and conditions in which payment terms are clearly set out. By having clear terms and conditions in place, and bringing them to your customer’s attention, you make sure that all parties are aware of their rights and responsibilities.
Depending on your circumstances, you may need multiple Terms and conditions in place.
Issue timely invoices
Ensure that invoices are issued in a timely manner and in accordance with your terms and conditions or specific agreement. This helps ensure that your customers know how much they need to pay and when. Use an Invoice template to help with this.
If your customers have ordered something from you, consider using a Purchase order to confirm the goods/services ordered and their cost.
Send payment reminders
If payment is overdue, consider sending a Debt recovery letter. This informs your customer that payment was due and that you expect payment shortly. By sending this letter, you not only inform your customer that they have breached your agreement but also give them an opportunity to explain any delay.
If the payment remains outstanding after you’ve sent the first letter, consider sending a Second debt recovery letter to inform your customer that you will take further action if payment is not made.
You can also use your debt recovery letters to set out any interest you may charge on late payments for commercial debt.
For more information, read Payment reminders.
Keep an audit trail
Updated and coordinated records are essential to effective debt collection.
An audit trail of credit-related documents will facilitate prompt payment. It also helps establish indebtedness in the event of late or disputed payments and any subsequent legal action (eg sending a Letter before action before issuing a money claim).
This is especially important if you agreed on any repayment agreements with the customer.