HAPPY new year and welcome to 2013.
In the course of the past year Hall and Co Solicitors saw many situations where companies, trusts and sole traders were not paid for work they had performed as a consequence of customers being wound up or being declared bankrupt.
With stressed cash flow due to not being paid on time by their customers, many of our clients struggled to stay afloat themselves and in some situations found themselves facing bankruptcy or insolvency as a result.
In the transport industry, cash flow is critical to pay for tyres, bills, petrol, loan repayments etc and late payment or non-payment of your invoices can be disastrous.
While we are not in the business of providing financial planning advice, there were a few key factors which, once put into practice, provided our clients with some assurance that they would be paid for work they had completed and limited the amount of damage that would occur if a non-payment situation arose.
If the situation arises that you have not received payment within the time you have prescribed on your invoice, it may only be the cost of a letter of demand from a solicitor which is necessary to recover that money.
Alternatively, you may have to go down the path of briefing solicitors to institute legal proceedings against your customer if the amount of time is significant enough to justify this.
If there is a question as to the financial solvency of your corporate customer, you may also wish to consider applying to have the company wound up.
Irrespective of how good your work ethic is, or the quality of service you provide, it is important to make sure that you have systems in place to give you the best opportunity to be paid fully for the work you have performed.
This should make 2013 a more enjoyable year without so much worry about not being paid your outstanding accounts.
Where possible, ensure that there is a concise agreement between you and your customer which sets out the terms and conditions of payment and your rights if those terms and conditions are breached by the customer.
Terms and conditions may include the ability to register an interest over property owned by the customer so that recovering larger debts becomes possible and your ability to recover your legal costs incurred in enforcing the agreement.
Contracting with the Proper Person
Understanding who you are contracting with is very important.
If your contract is with an individual trading as a business name, it is the individual person who will be liable to you.
If the customer is a corporation / company (usually ending in "Pty Ltd"), it is common that the company may only be worth $2 and therefore there should be provisions in your agreement to appoint a guarantor, meaning that if the company is unable to pay your debts, you are able to chase an individual (usually a director of the company).
While the last thing on your mind may be issuing invoices once you have returned from days or weeks away from home, the sooner your invoice is issued, the sooner you will be paid for the hard work you have done.
This will improve your cash flow and your ability to pay your own debts such as fuel card accounts.
Time to pay
Strictly adhere to the time which you have stipulated in your agreement or invoice that your customer must pay you by.
Each business is different, however if, once the account becomes 60 days old (for example), don't rely on promises of payment.
In our experience, talk is cheap.
Have a debt recovery system in place and remember that the sooner you chase the debt, the sooner the sometimes lengthy process of debt recovery can begin and the sooner you will have your cash flow back to normal.
Often companies try to trade out of a bad situation which often makes the situation worse.
In our experience, the longer your account remains outstanding, the less likely it is that you will be paid at all as your customers may be moving towards bankruptcy or insolvency.