Very few businesses using our debt collection services ever charge, or even threaten to charge, their customers for late payment. Why is this, when their terms and conditions contain details of their late payment penalty charge? Why is this, when the government provides them with a statutory right to compensation via its Late Payment of Commercial Debts (Interest) Act 1998 legislation, and its subsequent amendments?
The answer is fear: Fear of alienating their customers at best, and losing them at worst. A very reasonable concern you may think. Then why is it that these same creditors have no qualms about us charging their customers for our costs, and interest? Again, it would be reasonable if it meant they had already ceased to trade with their buyer; in fact, most tell us that they continue to trade with buyers who pay their invoices, the interest and our costs to us.
Are creditors that fail to penalise late-paying customers accepting the so-called ‘late payment culture’ where nobody expects prompt payment? The best culture they and their business could adopt is to make terms and conditions part of the customer onboarding process.
Onboarding is the point of least resistance with late payment terms likely to go unchallenged, but should it meet with resistance; it could mean the buyer intends to pay late; better to learn this before trading with a buyer, than after providing goods or services. Once trading begins with the new customer, adding the late payment penalty intent to invoices will confirm the terms and conditions. Remember too that waiving the late payment charges in exchange for immediate payment of the principal is a negotiating position not possible without penalties being available in the first place.
With transparent terms of trade, imposing them is key; a call close to the due date will not shock or surprise the buyer. By using the term ‘buyer’ I mean the point-of-contact, not the business entity: Companies owe money, but people pay bills, so deal with the person who pays your bills. Hold them to account, confirm what happens next, and thank them for their time and assistance.