smallbusiness.co.uk: Helping your business think big

Cash is the lifeblood of any business and there is little comfort in making sales if you don't get paid for them. There is usually an element of risk-taking in sales in that you can't confine your sales to 'safe' customers, but you can go some way to limiting this by assessing the risk.

Carry out thorough research into the business background of the customer you are dealing with. You could also find out and speak to other people who have dealt with the same customers, or consider asking for references. Credit reference agencies such as Credit Safe, Check Sure, Armadillo, Dun & Bradstreet and Equifax are also a useful source.

How to speed up the payment process
As David Singleton, managing director of business banking at Lloyds TSB, points out, ideally the best way to avoid payment problems is to ask for cash in advance or on delivery.

"With a clear agreement in place, you hold the cards when it comes to chasing payment. It is worth getting to know how the payment system works within your customers' businesses and exactly who is responsible for drawing cheques and making payments," he says.

This can be especially important with big companies, who may have very formal procedures in place and may refuse to pay without, for example, a purchase order.

Another way of securing monies owed is to offer prompt payment discounts, but be careful how much you give as a discount, as being too generous could eat into profit margins. This is also best negotiated in advance with your client, and not left to the accounts department to deal with.

What you can do
As soon as you notice a customer has failed to make a payment on time, ask for the money, which should be done politely in writing. Fax your request, and then follow it up with a letter in the post. Try to find out the name of the person responsible for dealing with your payment. Sending out statements on a regular basis, with the word 'outstanding' written on them, can also help.

If there is no reply within seven days, check that you have all the correct details, and then fax another request, with a follow-up letter by recorded delivery. If you still don't get a response within seven days, place a phone call and try and find out the reasons behind the delay. Ensure you speak to the buyer/customer and the accounts department and keep a written record of all communications and responses.

"When faced with a late payer, the key is to keep chasing and pressing for what you are owed. Keep cool and polite. If all else fails, then you can resort to commencing legal action in the small claims court. This is where you can pursue small claims up to a value of £5,000," advises Singleton.

Follow these tips

- Keep the pressure up

- Try to get a promise of payment

- When you call, try different times of the day and the week

- If the cheque does not arrive, consider collecting the money in person

- If all steps have failed, send a formal letter from your solicitor, threatening legal action. Ensure you keep the threat.

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