How IT contractors can keep bad debt at bay – Part 2
Prevention is of course better than cure when contracted, freelance and self-employed professionals come to face the thorny issue of late payment for their services, Charles Wilson, of Lovetts, a debt recovery law specialist, writes.
In the current climate, late payments will inevitably crop up, meaning debt can hit a business of any size. But for one-person-businesses, the importance of keeping debt from turning into ‘bad debt’ (an uncollected sum that is written off) cannot be overestimated. So here are five steps for IT contractors to consider taking once or AFTER your next payment date is missed:
1. Stay on top of outstanding debts and chase in the most efficient way to reduce the cost and impact on your business. When a payment is overdue, act as soon as possible to reduce risk and increase the chances of payment.
2. Consider using a specialist commercial debt management company to manage this process so that you can focus on the day job. Currently , our findings show a ‘Letter Before Action’ prompts a response or payment in over 80% of cases.
3. Ensure your paperwork is accurate and timely - leave no room for error and resolve any queries promptly.
4. Late payment is a cost to your business. Make sure you investigate and instigate Late Payment Interest (LPI) and compensation, and claim for debt recovery costs. This will not only deter the customer from paying late in future, but will also ensure you do not lose out. Ensure LPI and debt recovery costs are mentioned in your terms and conditions, and that your credit management system is adapted to implement the extra charges.
5. When chasing late payments and particularly if using the LPI legislation, do take into account the relationship you have with the customer, and whether it is likely to be damaged by this action.
Editor’s Note: Read How IT contractors can keep bad debt at bay for the steps to take BEFORE your payment is due.