Catherine Rickett, debt recovery manager, of Roythornes Solicitors, which has offices in Alconbury Weald and Peterborough, writes on managing ‘poor payers’ in business.

Having bad debts can drain your business, but there are a few simple steps you can take to reduce the potential for bad debts and protect yourself as much as possible.

Know your client. Be sure to undertake careful checks on new clients. Account application forms are an excellent way of identifying your customer from the outset.

You need to know who you are contracting with to pursue the correct person later if necessary. It’s very simple to carry out a free check of the Insolvency Register before allowing a customer credit, and credit checks can be undertaken for a relatively low fee on new or existing clients.

Make it easy for your clients to pay. The easier you make it, the more likely is it that they will pay you. Consider having card payment facilities, BACS, direct debit, online payments or even PayPal. Be proactive about collecting payments from clients. The law is there to help with late payment compensation.

Consider applying an incentive for early payment. Money is better in your pocket than in your debtor’s and whilst you may feel uncomfortable about lowering your prices for early payment, sometimes it can cost more to recover a debt than any discount applied.

What if it goes further? Have clear credit control procedures in place and stick to them. Ensure that you keep copies of correspondence with the client including call logs, emails and letters and proof of delivery or collection. These may prove invaluable if the matter proceeds to court.

Keep a ‘cushion’ of ideally three months’ operating expenses to protect you from unexpected cash flow issues. Bad payers are a business reality and if your company is working from an account balance of nil, one slow sales month could mean instant disaster.

Did you know? In the absence of a contractual agreement, the Late Payment of Commercial Debts (Interest) Act 1998 gives protection to businesses which are owed money by other businesses in terms by assuring interest is payable at eight per cent above base rate, from the date payment falls overdue.

If your customer stubbornly refuses to pay despite your chasing, it may well be time to call on professional advice. Often getting a third party involved can prompt payment and protect customer relationships.