These are unprecedented times. This is a world-wide crisis which has far reaching consequences on society, communities and individual families. There will be instances where businesses or individuals are seriously impacted by the disease and forbearance should be exercised where appropriate. We all need to help each other.

However, wages and overheads will need to be paid whether businesses are open or not – and goods and services still need to be paid for. There have already been many stories about human kindness, empathy and support. On the other hand there will always be those who seek to take advantage of such situations to avoid paying for debts unfairly.  After all, getting paid for hard work is as much about fairness as it is about law and contracts.

The reality of the current situation is that the usual threat of court action is unlikely to be as impactful as normal. These are our top tips to make sure that you keep getting paid for your precious goods and services whilst the situation persists:

  1. Be understanding and reasonable
    The customers you have now, will likely be customers post-crisis, so it will be important to keep people on side, whilst maintaining the financial health of your business.

    Credit control is important for every business.  It is not an option for everyone to stop paying as this would create a liquidity shock wave.  Accordingly, creditors should engage reasonably with debtors to discuss sensible payment resolutions, taking into account individual circumstances.

    If there is no dialogue, you need to have a toolkit in order to get paid. Some will unfortunately use the virus as an easy excuse, but the following tips should give you areas where you could consider action.
  2. Get effective electronic credit control processes in place
    Most businesses will to some degree have credit control processes. Robust systems and controls ensure that your business is getting paid as early as possible and is identifying risks to payment at an early stage.  

    With many employees working from home, there may be little merit in sending invoices and chaser letters by post as these will not be picked up until the crisis is over. If you want to get paid during the lock-down you must move your invoicing and credit control processes to electronic means where possible. You also have to be flexible in how you get paid. Speak to your bank to make sure you’re offering the widest range of payment options.
  3. Get invoices out early
    The sooner you issue the invoice, the sooner you will get paid for it. You should eliminate any lag between completing your job and billing for it. Discuss monthly billing arrangements with customers in respect of larger projects: don’t wait until the end.  Cash flow is really important when new business is slow – ensure you get paid for the work that you have already done and help mitigate cash flow challenges.
  4. Get paid upfront
    If you are worried about the cash flow or solvency of a customer or the challenge that COVID-19 presents to getting paid, then look for advance payment.  This is especially relevant for those firms which provide essential goods and services which remain in high demand.
  5. Charge interest (and tell late payers you will be)
    Check to see if you can charge interest to incentivise customers to pay you on time.  

    There may be provision in your standard terms of conditions regarding interest: if not you should think about adding this.  Alternatively, the Late Payment of Commercial Debts (Interest) Act 1998 adds an implied term in business-to-business contracts, giving at least 8% a year interest on the price of goods or services, plus a fixed sum and reasonable cost of recovering the debt.

    Where customers have short-term cash flow issues (and you don’t) you may be happy to grant additional time to pay on the condition of a healthy interest payment.  Where payment is late and you agree to an extension, you can always make interest payment a condition of that extension.
  6. Borrow to fill the gap
    If you are worried about cash flow problems, consider whether bank finance can help.  This could be in the form of an overdraft, credit card or invoice financing.  The Bank of England base rate has been reduced to 0.1% its lowest ever rate.  Additional measures were announced in the budget on 11 March to further increase the availability of credit.  On 17 March, Chancellor, Rishi Sunak, announced a programme of government backed loans totalling £330bn with the promise for more if required.  This will be available to larger organisations through the Bank of England and smaller enterprises through business interruption loans offered by conventional lenders.  Precise details are yet to be released but these should be on-stream from 23 March.

    This all means that bank finance is relatively inexpensive. If you have additional security to offer the bank (eg. a fixed or floating charge or a right to the benefit of an invoice), this may help secure even better rates.  A word of caution, make sure you know what you are agreeing to.  In particular, personal guarantees create personal obligations to the creditor in the event of any financial difficulties of your business.
    If you don’t have an invoice financing or overdraft solution currently, you should consider getting one ready in case there is a need for short-term, flexible credit.

    If you’ve got credit in place to ease cash flow, it may help you grant some additional time to your customers with strong covenants – but make sure you’re charging more interest than you’re paying!
  7. Take security
    If you are worried about the ability of one of your customers to make payment and are unable to obtain advanced payment, consider whether you should ask the customer for a security.  This could be a fixed or floating charge, or a personal guarantee.  It is important that personal guarantees are properly documented or you may find that they are unenforceable.  You also need to make sure that the security is valuable, sellable and will retain value.  You may be able to offer much more support to your customers if they can give you comfort regarding payment in return.  Again, you can make the granting of security a condition of giving time and support.
  8. Self-help remedies
    If you are selling goods, consider retention of title clauses in order to maintain ownership pending payment.  Also, when a customer delays or refuses to pay consider whether you hold any documents or property belonging to the customer which you could continue to hold pending payment.  You can also stop or threaten to stop supplying the customer if they’re not willing to pay.  Some customers will need you now.  Others won’t but they’ll definitely need you again in the future.  Be aware customer’s present and future dependency on you in discussions about payment terms.
  9. Prioritise customers
    If you anticipate possible cash flow problems, prioritise work for those customers who have a track record of paying on time. In periods of high demand explain to customers what they pay for upfront will be prioritised over other work and that additional fees will apply for express service provision.  This is a pricing concept that all customers are now very familiar with.
  10. Take the action to court as soon as possible
    If the customer delays or refuses to pay, don’t delay in taking the action to court. Certain short-term (‘interim’) measures exist which where possible can incentivise quick payment and best protect your position. In Scotland, measures such as a diligence on the dependence, can include an arrestment of a bank accounts, giving you security that you will get paid.   

    The courts remain open currently.  It is likely that the courts will do all they can to stay open for essential matters.  Whilst it is possible that routine hearings are cancelled, interim measures may still remain open for business. These measure can be extremely effective in securing and prioritising payment of legitimate debts.

Overall, don’t let the pandemic unnecessarily damage your business's financial health.  Many households depend on your business for their livelihoods and payment processes between businesses must remain free flowing or the most vulnerable in society will suffer.

If you are a debtor and worried about interim measures, consider whether you should register caveats with relevant courts in Scotland.  Caveats give you notice of any actions for interim measures, giving you an opportunity to defend such measures.  In the absence of caveats these measures may be granted without notice and potentially effect your cash flow where your bank accounts are frozen.

If you do need any advice in relation to any points discussed, please do not hesitate to contact us. We offer a comprehensive debt advice and recovery service helping keep businesses cash flow stay on track.