Excuses That Aren't Really Just Excuses

The fact that your customer is having problems getting paid by its own customer isn't an excuse for non-payment - and neither is the fact that your customer company is running at loss - but these days you can't (or at least you shouldn't!) write off any of those factors as being 'not your problem' and press for payment regardless.

If your customer's customer has gone into Administration, for example, or you did sub-contract work for a customer which has not been paid by its own customer, or or your customer's company is running at a loss, then your customer may simply be unable to pay the whole of your oustanding account immediately - or even in the short term. If that is the case, then the only reasonable answer is to compromise - and to try to help your customer to get all its other creditors to compromise also.

Nothing is gained - and much can be lost all round - if one single creditor refuses to be reasonable and insists on immediate payment or takes legal proceedings rather than agreeing to accept settlement over a period, however long that period might be.

Everyone's best option now is to try keep any troubled business active, and trading, and in the land of the living rather than condemning it be yet another 'gone goose' company - out of which nobody, believe me, will get anything at all.

Excuses - We Are Your Biggest Customer

This is less an excuse for late payment than a form of commercial blackmail, and it's usually accompanied by the unspoken threat that the customer will delist the supplier and take its business elsewhere if the supplier doesn't knuckle down and accept the situation.

What you do about big customers who consistently pay late will obviously depend on several factors, but if the customer isn't a supermarket or a similiarly huge entity, then asking yourself some basic questions can help you to come to a decision as to whether to press for timely payment or accept the fact that this particular customer will never pay to terms.

One important question is: 'how profitable is this customer really?'

Are you, for example, having to borrow money to pay your own accounts? If so, how much is that costing? Are you having to pay your own creditors late? If so, what effect is that having on your company's credit rating? Are you missing out on other sales because the cash flow problems caused by the customer's late payment means that you can't re-stock? Are the administrative expenses involved in dealing with this customer higher than they should be? Are you giving them lower prices per unit?

If the answer to most of those questions is 'yes', then you will need to analyse what the impact on your own business would be if you insisted on prompt payment and the customer really did take its business elsewhere. Could you, for instance, sell the items they buy to other customers at the same or a better price in sufficient volume to balance out what it is costing you to deal with this big - and actually bad - customer?

Excuses: Your Sales Manager/Salesman/Assistant said...

This can be an excuse to delay payment, but on the other hand in might not be, so the first thing to do is to find out exactly who said what to whom - not least because what any representative of your Company says could bind your Company to abide by that statement.

If it turns out that a representative of your Company has actually agreed to give a customer time to pay without reference to you, then you have several important things to do immediately:

• Go through the usual checks to find out more about the customer's real financial situation.
  
• Get in touch with the customer, and either agree to the arrangement or (better!) try to arrange a more advantageous payment plan.
  
• Put the agreement in writing - and make sure to stress that the arrangement is 'one time only' and does not apply to other contracts.
  
• Decide how much (if any) credit you are prepared to extend to the customer for the foreseeable future.
  
• MAKE SURE THAT THIS SITUATION CANNOT ARISE AGAIN!

This kind of thing tends to happen where there is no formal Credit Policy in place - or where employees have not been made aware of their place in the Credit Policy scheme of things.

Obviously, if you already have a Credit Policy, then your employees need to be made aware of it, and given to understand that they have to abide by its terms.

If you do not have a Credit Policy - you need one! You'll find the basic ingredients of a credit policy at http://www.metlissbarfield.com/systems.htm under the heading 'Essential Points to Cover'. If you have a problem using the 'recipe', please let me know. I'll do what I can to help.

New Credit Information Service

Commercial credit agency Graydon UK and business data specialist Validis will launch a new credit information service for SME's this summer.

The new service is intended to allow SME's to exercise greater control over the information provided by credit reference agencies to prospective creditors, and improve their access to finance and credit insurance cover.

Information provided to prospective creditors/commercial lenders under the new service will be based on reliable, detailed up-to-date financial data including validated monthly management accounts.

The Federation of Small Businesses has endorsed the new venture, saying that it will help firms needings finance as the economic downturn continues.

Unacceptable (but Frequent) Excuses for Late Payment

• Mr X has just died.
• Our Company Secretary has just left.
• We are in the middle of changing banks.
• We have just acquired a new Company, and have got rather behind.
• Because of holidays/staff shortages/the 'flu/ Christmas, we have got rather behind.

All of these are unacceptable but very frequently utilised excuses for late payment - and basically they are all designed to appeal to your better nature or to simple fellow-feeling.

Obviously, it's very sad when anyone dies - but unless our fictional 'Mr X' was a sole trader with no staff at all and there was never any co-signatory on the business account, then his death would not constitute a valid reason for late payment. By all means be sympathetic, but don't be so sympathetic that you fail to ask questions. If Mr X really was a sole trader and completely bereft of staff, then the person most likely to answer the telephone is a family member - in which case you will likely get all the answers you need just by listening and making sympathetic noises in the right places. If a member of staff answers the telephone, however, then you can be sure that that person will be getting his or her salary cheque as usual, and you should press to get your own cheque.

Whenever a Company Secretary leaves, arrangements must obviously be made beforehand by the Company for a change of signatory on the Company's cheques - and it's unlikely that the Company Secretary was the only person capable of signing the Company's cheques in the first place. Furthermore, no bank will leave a Company without a cheque book, and a temporary cheque book will therefore have been issued to your customer. In either case, don't forget that you can settle for a banker's draft, a money order, a banker's cheque, payment by BACS - or cash. Mention these alternatives, and press for payment.

Everyone is overworked and under pressure at some time or another. Many people know all about the holes in the system that can appear due to contagious diseases or because people need to be able to take their holidays during the school holidays and how difficult it can be to fill those holes adequately; a lot of people understand far too much about the 'Christmas' rush, and some people understand the frenetic activity and administrative nightmares that can accompany an acquisition - so we can all sympathise with people who are experiencing those problems and pressures. But not to the extent of accepting the existence of those pressures as being valid reasons for failing to pay suppliers on time. Sympathise, empathise, relate your own experiences - and then press for payment, because that is exactly what would happen were the shoe to be on the other foot...

Dishonoured Cheques

It's obviously a very worrying sign if a customer's cheque is dishonoured on first presentation.

The first thing to do, of course, is to get in touch with the customer and ask for an explanation and either a replacement cheque or some other form of payment.

No matter what excuse the customer offers, and never mind how speedily you are paid thereafter, you will need to get an up-to-date Credit Report and base future trading on the information it provides. It would be wise in any event to reduce the customer's credit limit.

NEVER RETURN A DISHONOURED CHEQUE TO THE CUSTOMER. It is important evidence of default - and, of course, that the customer accepted its indebtedness, and intended to discharge your account.

The Cheque Was in the Post After All. Sadly...

• It wasn't signed, or
• It wasn't dated, or
• It was wrongly dated, or
• Words and figures did not tally.

It is possible for an unsigned cheque to be sent out in error, so you shouldn't assume that this is just another delaying tactic. You might, in any event, be able to present an unsigned cheque if your customer agrees to speak to the bank and request its acceptance of the cheque.

If you receive an undated cheque you can simply add the date, but wrongly dated cheques can be more difficult to deal with.

Cheques that are wrongly dated in error tend to turn up at the turn of the year, and there is no alternative but to send them back and ask that the customer amend the date. Cheques written by people to whom the English dating system (day, month, year) does not come naturally may also need to be sent back for amendment if the date is written in figures - 5/9/09 rather than 9/5/09 for example.

It is, of course, possible just to present wrongly dated cheques and hope that they clear - but it's a bad idea because it can cause unnecessarily long delays in payment if the cheque is dishonoured by the bank.

If the words and figures on the face of the cheque don't agree, it is possible just to claim the lower amount, but again it's better just to send the cheque back for amendment.

ALWAYS TAKE A PHOTOCOPY OF A CHEQUE THAT NEEDS TO BE RETURNED TO A CUSTOMER FOR AMENDMENT. The photocopy cheque is important evidence of the customer's acceptance of its indebtedness and of its intention to pay your account.

Excuses, Excuses... The Cheque is in the Post

The cheque's in the post. Heard that one?

The trouble is - thanks to the Royal Mail! - the cheque really might be in the post. In which case it could turn up 'anywhen' as people used to say where I lived for a big chunk of my life.

The main objective here is find out whether the cheque was actually sent or not, and one way of finding that out is ask for details of the cheque - the number, the amount, the date, the bank, the account number, and so on - because it's really quite difficult to fabricate the details of a non-existent cheque off the top of your head.

If you get the details and you still don't receive the cheque within a couple of days, call back, ask the customer to stop the cheque and issue a new one. If you don't get the details - ditto.

DON'T ask them to post the replacement!

You don't want to be paid 'anywhen' - or even 'somewhen'! - either of which I know from experience could certainly turn out to be 'never'. You want to be paid ASAP. So it's a good idea to tell your customer that - as luck would have it! - you'll be passing by their premises in a couple of days time and you'll stop off and collect the replacement cheque.

It's really very difficult to tell someone that they can't call to collect a replacement for a cheque that has apparently been lost in the post. It's even more difficult to formulate an excuse as to why they shouldn't do so. And as it's a real giveaway to do either one of those things, people tend to come clean if they have a real problem, or pay up if they don't.

Obviously, if your customer is many miles away and you don't employ representatives then it may not be convenient for you to collect a cheque, but these days convenience sometimes has to give way to necessity - depending, of course, upon the size of the cheque in question...

Always Investigate Complaints - They Might be Legitimate

Many companies use complaints to delay or avoid making payment, and no doubt you have had, or now have, or will have customers that use this tactic - but you shouldn't become so suspicious that you treat all complaints as groundless and all customers who complain as nuisances or bad payers.

You should never lose sight of the fact that a complaint might be justified, and that your customer might have a genuine grievance. ALL complaints should be thoroughly investigated - despite the fact that this will inevitably delay payment - and pending the result of your investigation, all collection activity against the complainant must stop.

If you are not totally in control of the collection process, make sure that everyone involved knows that there is a complaint, and that all collection activity against the complainant must stop. There's nothing worse than dunning a disgruntled customer.