With rising operational costs, it can be crucial for businesses to avoid costly legal disputes. Supply Chain, a leading digital community and publication for the logistics industry asks our Head of Dispute Resolution, Elizabeth Wilkinson, to share her advice on how to navigate your supply chains as painlessly as possible.
1: Communicate
Keeping in touch is always a sound principle, especially in worrying times when somebody going silent usually means bad news. Also, communicating the simple message “I haven’t forgotten about you” works both ways: to reassure creditors and act as a gentle reminder to debtors.
2: Keep the bank informed
If you’re expecting to struggle either with debtors or payables, it always makes sense to get in touch as soon as possible. Simply missing payments will give the bank no alternative but to take action against you. If you approach them with a plan and costings you should receive a much more sympathetic reception.
3: Pre-empt with suppliers
Just as with the bank, as soon as you detect headwinds it is imperative to prevent misunderstandings. Keep in touch with suppliers particularly if you need a little more time to pay. Ensure you are contactable and provide updates before being chased.
4: Credit control
If you are a smaller business and do not benefit from a credit control department or provider, now is the time to invest. Things like running updated credit checks on clients and suppliers, putting in place credit management procedures and reminders are necessities that some business leaders can tend not to find palatable – but it will reap benefits.
5: Revise payment terms
In bountiful times, payment terms of 30 days or more are seldom questioned, but it is by no means unfair or unacceptable to ask customers to pay invoices on 15-day terms or even in advance. This is especially true if they are a first-time customer or if a credit check has flagged them. In both these cases, they should not take it personally if you make it a non-negotiable policy. Indeed, if they object then that’s another warning flag.
6: Monitor payment plans
These should be treated with care but are all part of maintaining a fair and supportive relationship. In some cases they may be essential – and although they do not need to be ‘enshrined’ in contractual form, do at least make sure they are in writing (email is fine) so you have some evidence to refer back to and rely on.
7: Be patient
It can be alarming when a debtor stops paying and the instinct may be to escalate immediately to legal action. By exercising patience and asking the advice of others, you need to ask: is this debt worth permanently torpedoing this relationship? And more to the commercial point: which will cost me more in the long run, fighting and legal action or patience and perhaps partial recovery of the debt? Do not underestimate the power of gut feel when trying to work out whether or not you are being strung along.
8: Discount for speedy payments
This can be written into contracts and service level agreements up front as a policy, but there is also nothing wrong with reactively offering it if you feel it may benefit both parties in difficult times.
9: Late payment interest
The Late Payment of Commercial Debts (Interest) Act 1998 means a business can legally charge interest on overdue debts. In the same way as offering discounts can induce quicker settlement, so can a reminder that this interest is mounting, but could be waived as part of a payment plan.
10: Maintain your reputation
We have seen time and again that businesses that act supportively, cooperatively and with restraint in difficult times are rewarded in the long term with the best relationships and reputation. Truly leading businesses are those that step up in times like these to offer reassurance and innovative strategies to help not only themselves but the entire community of stakeholders around them to survive.
Read the original article here.