I met a guy last night who had lost his business due to a customer refusing to pay. Total debt amounted to £300k and all through the job he had been promised payment and re-assured. There was a strong and warm personal relationship but as soon as the job was finished the customer changed stance and refused to pay. This bad debt took an otherwise sound business under.
What can we learn from this? Hindsight is a wonderful thing and whilst this may look like a failure of trust it is actually a failure of objective and professional credit control. So what could have been done differently:
- the work was over a period of time so staged payments would have helped
- divorce trust from objective reality. No payment after repeated requests = guys pulled off job. This is leverage
- clear credit control escalation policy for late invoice payment
And the worst part? The debtor has plenty of cash and can pay - just doesn't want to. It's going through the courts now and will no doubt be tied up in red tape for a couple of years.
Remember - asking to be paid on time is not a favour, it's professional business practice. If you are uncomfortable completing the credit control in your business get someone in to help you. It's too important to neglect.