< Expert Advice | 29.06.2017 |

Cashing in

Cashing in

Late-payers can cause a great deal of distress to small plumbing and heating firms, adding a layer of uncertainty and causing the kind of cash flow crises we could all do without.

Though the principles of good credit control are similar in both commercial and domestic markets, the execution and actions are different. Domestic customers, who tend to pay for work upfront, present less of a risk to contractors. Bigger commercial jobs may come with potentially larger profits, but they also carry a higher probability of late payment. So what can be done?


The first step you need to take is to determine the level of risk on payments you can take as a business. If the answer is “no risk at all”, payments in advance will be the solution. This can restrict your market somewhat, especially in the commercial sector where companies often expect to pay on account. In the commercial market, early payment discounts might be attractive to some businesses where profit is the driver. But extended terms may still be more favourable to businesses where cash generation is key.

Be selective about who you work for and be clear about reporting relationships. As many development or construction projects have a web of businesses involved, it is essential you know which business entity you are contracting with. Its creditworthiness should be thoroughly checked and monitored throughout the payment period and, if applicable, during the retention period. A change may signal a payment issue looming and you are best prepared when you are forewarned.


Assuming the client’s history suggests they can pay, the next step is to establish the terms and conditions (T&Cs) under which you will be paid. It is much easier to set expectations at the beginning of a relationship. In the domestic market, having a set of standard T&Cs drawn up by a procurement lawyer will pay dividends later if you end up in a legal dispute.

In the commercial market, the T&Cs will be issued to you by your client, often the building contractor. Avoid arrangements with a small contractor who says a contract is not necessary. A written contract is simply a means of determining the outcome of possible disputes before they occur. Ask for a simple list of your actions to get paid as the project progresses. If you don’t like the payment terms or risk associated with the T&Cs, don’t accept them. Hard as it can be to turn down work, you may need to walk away.


Having entered into a contract, good communication and building a relationship with those involved in the payment chain are essential. People find it much harder to delay payment to those they have a relationship with. When you submit an invoice, ask if there is any reason it will not be paid on time. Generally, people do not like to go back on their word.


If you follow the advice above, issues with payment will start to reduce. But there are always a few customers who are a problem. Having proper T&Cs or a contract in place makes the next step much easier. For domestic clients, issue a formal notice giving a date by which an overdue payment must be received. State that the next step will be to put the matter in the hands of a solicitor, or to pursue them through the small claims court.

For commercial clients, the solution will depend on the form of contract and the size of the debt. The funds can be recovered with the help of a claims consultant or a lawyer who specialises in construction. They will advise on the most appropriate and cost-effective method. Mediation, adjudication and arbitration can all be tried before taking the matter to the courts. Making an attempt to recover late payments using alternative dispute resolution processes before resorting to court is often stipulated in the contract.

The key in all cases is to know who you are dealing with, agree how payments will be made, keep to those agreements, build relations and, if all else fails, seek advice early on.

Peter Searle is a small business adviser with Business Doctors www.businessdoctors.co.uk


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