Managing customer debts is not the most exciting part of running a successful business, but it is essential and need not be too painful. An effective credit control regime will assist cash flow and help to put you in a position to take exciting decisions about investing and growing.
In the case of credit control, prevention is better than cure. Although it is easy to say and harder to do, there are simple steps you can take to minimise the risk of unpaid fees.
Consider the customer’s perspective
Firstly, review your process from the customer’s perspective from start to finish. Do they know about your terms of business? Can they make an informed choice about incurring fees? Do they know when and how to pay?
To rely on your terms of business (including fees and payment), you must draw them to your customer’s attention in advance, preferably in writing. It is a common misconception that referring to terms and conditions when you issue an invoice is sufficient. In law, this is generally too late.
It is a common misconception that referring to terms and conditions when you issue an invoice is sufficient. In law, this is generally too late
You could provide a printed copy or refer to a website link, which should be done when you take on new customers. You should also notify existing customers when you change your terms, including your fees. This could be achieved by sending a circular communication or setting up a system wherein a new contact from an existing customer triggers a letter or email.
If your customer has seen your terms of business, they will know what is expected and can make an informed decision. Otherwise, they may have unrealistic expectations, leading to problems down the line. At worst, your legal right to recover your (full) fees may be hindered if you cannot show your customer had notice of your terms.
Routine versus non-routine work
If you keep a separate fees list with charges for routine work, make sure customers see it in advance, including each time it is updated. It is best to do this by email or letter because this minimises the scope for argument after the event.
You won’t always know the cost of non-routine work, so make it clear where you are charging by hourly rates and always give your best estimate of the likely costs beforehand
You won’t always know the cost of non-routine work, so make it clear where you are charging by hourly rates and always give your best estimate of the likely costs beforehand. It may not feel appropriate to discuss fees before emergency surgery, for example, but a brief conversation will ensure that the customer can give informed consent.
When to pay?
For payment, the safest option is to require payment at the practice on completion of the work. You may want to request payment in advance in certain circumstances, for example new customers, those with a previous history of payment issues and instances where you will be incurring external costs, such as laboratory fees. Ensure your terms and conditions expressly provide you with the right to request payment in this manner and, as above, that the customer is informed in advance.
If you send out invoices for payment after the event, they should clearly state what the charges relate to, when payment is due and how payment can be made. Unclear invoices are easier to ignore.
However good your systems are, you will still have debts to pursue. So, consider these principles to make your credit control most effective:
- Review unpaid debts regularly and be proactive: the longer that debts are unpaid, the harder they may be to recover and the less time and cost-effective it will be to pursue them
- Prioritise larger debts: an hour chasing down one large debt can give a greater return than many hours pursuing multiple smaller debts
- Call customers: everyone is busy, and it is easy to overlook correspondence that chases payment. A short polite phone call may spur the customer into making payment. It will also give them a chance to explain why they have trouble paying, allowing you to agree on a plan to pay in instalments where necessary
- Use a joined-up approach: if a customer has unpaid fees or a history of payment issues, make this information available for consideration before accepting further work. You may ask that all debts are settled and payment made in advance before accepting new work
- Consider external debt recovery: threatening clients with court action can damage the practice–client relationship and should be seen as a last resort. If you have reached that point, however, debt recovery services offered by solicitors or other agencies may be the most effective way to proceed
- Take a commercial view: Some debts may be unrecoverable. Don’t be afraid to write these off and focus on those you can recover
The longer that debts are unpaid, the harder they may be to recover and the less time and cost-effective it will be to pursue them