These unprecedented times are likely to pose a range of challenges for many businesses. These can be made worse if cash flow issues arise when customers – who may be struggling – fail to pay their bills. Here, Dispute Resolution solicitor Natasha Guest explores six steps for businesses in this difficult situation.
Step 1 – Check the paperwork
Is there a contract in place and if so, what does it say in relation to payment terms? That should be your starting point.
It’s a common myth that payment terms can be put on the back of an invoice – this is too late. In legal terms, you are trying to create a term of the contract after it has been performed. For payment terms to be legally enforceable they need to be brought to your customer’s attention from the beginning. So that’s either when they first make contact with you or as part of your quote process.
If there is no contract in place and you have not agreed any payment terms, then you need to find what would be a reasonable payment term. To assess what is reasonable, consider whether there are any industry norms – for example if you supply perishable goods then payment terms are likely to be either immediate or certainly within a matter of days.
Step 2 – Keep the dialogue flowing (and recorded)
Whether you are providing a service or supplying goods it’s always good to check in with the customer on a regular basis and record their satisfaction where you can. This can be by way of a customer signature or simply a follow up email to confirm a discussion.
If you are providing a service, then keep checking in with the customer – are they happy with the work to date and that you have done what you said you would do? If so, record it. If not, then try and resolve the issue at this early stage as that may prevent a dispute later that leads to non-payment.
If you are supplying goods, then get them signed for upon delivery and where appropriate check with the customer that they are happy with the goods and if so – record it!
Step 3 – Pick up the phone!
In these challenging and unprecedented times communication is going to be key.
Call your customer and find out why they are not paying you. If they are a large business or national company then they are far less likely to be financially affected by coronavirus than a small independent business. Consider the reasons given and whether or not you consider them to be genuine.
Step 4 – Keep communicating
If your customer is having real difficulties, staying in contact with your customer and trying to agree a way forward is key.
If they cannot pay you on time, perhaps they can pay by instalments. You are of course not obliged to deviate from your payment terms but in these financially challenging times it is worth considering, especially if you want to preserve the business relationship.
Whilst court proceedings are always an option, the reality is in the time it takes to obtain a judgment for even an undisputed debt, you could have received payment in full by accepting instalments.
Step 5 - Stand by your terms
If they are able to pay but are not, you may take a different stance. Any business should always have a credit control procedure in place and stick to it as best they can. If a customer simply does not pay and there is no dispute, then when your payment period has expired chase payment promptly and ask for prompt payment. If that does not work, then consider a ‘letter before action’ or formal demand for payment before court proceedings are issued.
Step 6 – Protect your position
Whatever you decide with your customer, if the terms are different to those you agreed in the contract then you need to make sure the contract allows you to (look for a ‘variation clause’) and that you follow and comply with what it says.
If there is no formal written contract then make sure you record what has been agreed, this can be done simply by a follow up email. It is worth adding to any agreement email that you reserve the right to take legal action for any remaining sums if they fail to pay an instalment on time. That way if they do default you can spring into action.
Natasha Guest is a Senior Associate in Berwins' Dispute Resolution team and offers expert litigation advice to both businesses and individuals.