- rradar
Credit Control begins before you supply goods and services
Updated: Feb 16

Although many people consider that credit control is about chasing overdue debts, the real work begins long before that – at the point before the transaction begins. Find out how to ensure that you limit the risks and maintain a good trading relationship with your customers.
Many articles cover what to do when another company owes money for goods or services supplied and how to recover the money you should have received.
However, the reality is that being proactive about credit control before you agree to supply goods or services to a third party is the best way of ensuring you are paid for what you do.
There are six easy steps that should be taken to ensure that the risk of non-payment is minimised:
1. Identify the other party.
This sounds obvious, but make sure you know with whom you are doing business. Surprisingly, it’s not unusual for a party to be unsure against whom they are claiming when looking to recover monies due. If you don’t know the identity of the other party, this may delay or even prevent the issue of legal proceedings, increase your costs, time spent and affect your chance of success.
So when you are entering into a contract for the supply of goods or services (which will preferably be in writing, but could be an oral contract), be clear whether you are dealing with:
A limited company (or limited liability partnership (“LLP”)). These will have “ltd”, “limited” (or “LLP”, “llp” or “Limited Liability Partnership”) after their name and you should obtain the registered name, number and (if any) trading address. Once you have the company name and/or number, you can carry out a simple webcheck on www.companieshouse.gov.uk to check that the company does exist. Remember, the company (or LLP) has its own legal identity and you are contracting with it and not any of its staff.
A sole trader. This will be an individual e.g. Mr John Smith.
A partnership. A partnership exists between persons carrying on business with a view to profit. Note that a partnership does not have a separate legal identity (so that it cannot sue or be sued); rather all partners are automatically liable for the partnership debts. You should be alerted to the fact that you are dealing with a partnership if a party trades as, or calls itself a name which is not an individual’s name and does not end with “ltd” or “llP” or an acceptable alternative. A partnership may be called John Smith & Sons or Simply Cakes. When dealing with a partnership, you are contracting with (and should obtain the names of) each and every partner.
2. Have a contract in writing
If at all possible, have the terms of your agreement in writing. This provides clarity for the parties and avoids confusion, thus reducing the chance of a dispute later.
Important terms to include in your contract:
Most business to business transactions involve a credit period, so rather than rely on statute or other implied terms, it is preferable to ensure that the terms of your written contracts include clear provisions as to the time and method of payment. If time for payment is important to you, then the contract should say so; otherwise, you will not be entitled to terminate the contract on late payment.
You might want all or any of the following rights on late or non-payment:
If you want the right to suspend a continuing supply of goods or services on late or non-payment, then the contract should say so.
Charge Interest. The Late Payment of Commercial Debts (Interest) Act 1998 implies a term for interest, fixed sum and costs in business to business contracts for the supply of goods and services. However, you can include a term in your contract that will override the 1998 Act, provided that it provides a “substantial remedy”.
If you want to change the payment provisions by, say, requiring payment in advance in future, then your contract should say so.
3. Check the terms of contracts proposed by the other party.
Contracts drafted by the other party will be favourable to that other party; for example, payment provisions may result in a time for payment being uncertain or entitle the other party to an extended credit period.
4. Undertake credit checks.
When you have identified the other party, you will be able to carry out credit checks to satisfy yourself that the other party can meet its obligations, including the obligation to pay the price under the proposed contract. There are various means of checking the credit-worthiness of other parties; for example, you may employ a credit reference agency or seek references from other creditors of that party.
5. Require payment in advance.
This will give you the most security and should be discussed in all cases. It should certainly be the favoured option if your credit checks reveal adverse information or you are otherwise concerned about the credit-worthiness of the other party.
6. Serve your invoice correctly
When agreeing to supply goods or services, ensure that you record the contact names and contact details (e-mail, fax and telephone numbers) of the other party. Also, record the address for invoicing, if different from the delivery, trading or registered address as this will save time and make credit control more efficient and effective. Getting your invoice to the right person will prevent delays in payment.
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