Covid-19 has affected businesses, and smaller businesses in particular, in a number of ways. The main challenges include a massive drop in sales revenue, weakened cash flow and reduction in orders. And these combine to threaten the future viability of the business.
UK SMEs have been in the midst of a late payment epidemic for a number of years. Covid-19 has added an extra layer of complexity onto that, and an obvious (and in many cases, valid) reason for debtors to delay or even default on overdue invoices. It’s an awful situation to be in, and efforts to help businesses to get back on their feet are ongoing and essential.
But what if you’re on the other side of the transaction, as the business that’s waiting to get paid? In this blog, we’ll offer some practical advice for how to respond to the most typical reasons for non-payment:
Reason 1 - We have ceased trading or are about to enter Liquidation/Administration.
If this reason is used then you’re well within your rights to ask for proof. If this cannot or will not be provided, continue with your collections process as stated and agreed with the customer at the outset of the relationship. Only non-genuine businesses will object to providing proof.
Examples of the type of proof that would be acceptable are the name of a proposed Insolvency Practitioner or details filed at Companies House.
Reason 2 - We can't pay as we don't have any money.
Again, ask for proof. This would typically be in the form of three month’s worth of bank statements and management accounts. You might also ask if they have received any Government backed support such as CBILS or Bounce Back loans.
If they are unwilling to provide this information then it is likely to be an excuse, not a valid reason. If they have received financial support and have had cash injected into the business then you should expect payment according to agreed terms, since this is the reason it was lent to them in the first place.
Reason 3 - We can’t pay this all in one go. Can we pay in instalments?
You should firstly request the same proof as stated above. Providing their cash flow has been impacted, be prepared to agree a payment plan that will take the customer no longer than 3-6 months to pay the debt owed. For future transactions with that customer you need to consider proforma or advance payment to ensure the position does not worsen.
Reason 4 - The invoice has a query on it.
Ask them not only to provide the details of the query but also to confirm when this was originally communicated to your firm. If the invoice was raised before or during the lockdown period then they should have made an attempt to query this invoice before.
When they provide details of the query, resolve it quickly. Be prepared to reject queries for older invoices and rely on your terms and conditions, which should highlight the timeframe in which queries are accepted. If they state that they were closed for a period during lockdown and therefore have only been able to query this now, again, ask for proof.
Reason 5 - We can’t pay as we’re waiting for payments from customers ourselves
Again, ask for proof (do you spot the theme here?!?) such as bank statements, the number of customers that owe them money, and how much is overdue. If they’re unwilling to provide this, for whatever reason, then proceed with your collections process.
We’re in a period of unprecedented and extreme uncertainty, and it’s essential that we all support each other through it. But let’s be 100% clear. This is money owed to you for work that you’ve done, so if your customer is unable to pay, for whatever reason, then they should be open and honest with you and provide the required proof. If this isn’t provided then you need to do what’s best for your business and continue to pursue full payment of the debt owed.
To find out more about how robust your credit control is, use our handy days sales outstanding (DSO) calculator.