In the third and final part of our ‘effective credit control’ series, I’ve put together the most frequently asked questions our Debt Recovery team are asked about credit control and the challenges they face.
Q – If my customer refused to sign an agreement, but we sent goods to them when they placed an order, can we still take action against them?
A - If your customer has accepted the goods from you and you can show that they were made aware of your terms and subsequently made an order, it is inferred that they have accepted your terms. The fact that they were aware of the terms and still made the order is a basis for accepting the terms.
Q - It is an old account, and we cannot find the original paperwork, but the debtor has been dealing with us for years. Can we rely on past actions to show a relationship?
A – If you can show a historic and established previous track record of dealings with a customer then this may be relied upon to demonstrate an acceptance of terms. It also helps if payment terms are included on all invoices and statements.
Q – My customer has changed names since the invoices were issued to them, do I have to re-issue the invoices under the new name and wait for the 30 days terms to expire before I can chase payment?
A – If the company has merely changed its name, then no you do not have to re-issue any overdue invoices from before the name change. The new company was merely formerly trading as the old company name and is still the same legal entity. You should of course amend your records as soon as any changes are known and send new terms.
Q- The Directors of my customer have told me they are closing the company and have asked me to invoice their new company for any outstanding invoices due from the old company. Should I do this?
A – The issue here is that the new company will not have the benefit of the goods or services provided to the old company. If you demand payment from the new company, they can quite rightly state that they have not received the goods or services provided. Always be wary if you are asked to change any customer details on your invoices.
Q – Can I add LPC to the account balance if the payment date has passed?
A – Yes. You are entitled to add LPC for each invoice, however, this may not be practical if each invoice is for a small amount and you may decide the charge on the total due in any one month, or just on the full amount of the account.
Q – The debt is quite old; how long do I have to demand payment?
A – The limitation period for the collection of overdue debt is 6 years. That time runs from either the date of the invoice or the last date an admission or payment is received. For example, if your debt is from 2000 but the debtor stopped making agreed instalment payments in 2020 you can still take action to recover the balance due.
Q – My customer has a query with one small invoice but is refusing to pay the balance of the account until the issue is resolved. Do I have to wait for payment?
A – No, a customer cannot withhold payment on an unrelated invoice. In this instance, they should pay the undisputed balance and then work with you to resolve their issue.
Q – My customer has built up historic debt and is still ordering from us. Can I only chase them for overdue invoices?
A – When an account becomes overdue, it can be assumed that as some invoices are overdue on the account, there is little possibility of obtaining current invoices when they fall due. You can demand the full amount of the account. You may of course decide to accept payment of the overdue invoices only from the debtor should they get in touch. Just be aware that you may be in the same position a month or so further down the line.
Q – One of my customers has a history of consistent late payments. Can I change their terms of business?
A – How you set up your terms is your prerogative. You can change payment terms at any time, however, this must be communicated to your customer before the change is made. This gives them time to find another supplier if they do not agree to the change and ensures that they do not place an order thinking they are doing so under their original terms.
If you have any questions not covered in this blog, our Debt Recovery team are always happy to have a no-obligation conversation with your credit control or finance teams, so please just get in touch if this is of interest.
If you missed the previous blogs in the series, you can read part 1 – the importance of knowing your customer here, and part 2 – reducing our debtor days here.
Disclaimer: Anything posted in this blog is for general information only and is not intended to provide legal advice on any general or specific matter.