Debt and the Valued Client

The relationship with valued clients can be close and emotional, Normally a long history of business coupled with personal interaction makes it very easy to forgive payment problems which would possibly never happen with 'newer' clients. This tends to be exacerbated when the organisation owed the debt is a SME.

When an old and valued customer falls behind in their payments, it is only natural to give them more time and carry on as if nothing has happened. Firms are very reluctant to 'Rock the Boat' and therefore wait way too long in starting the process of recovering the lost money.

The answer of course is to treat all clients the same, have them all subject to the same payment terms and credit control policies.

However many companies who run very tight ships, are still vulnerable to the danger of the 'valued' client.

That is why it is important, not to give anyone the benefit of your generosity.

A customer who doesn't pay is not an asset, they're a cost.

So the real answer is not to wait, but to act immediately, A good client will respect firm credit control. They will understand the need for good business practise, which could have been one of the reasons why they started business with you in the first place.

So if you come across the 'valued' client debt problem, first find out the reason for the failure to pay, there might be a valid excuse, a lost or missing invoice or an issue with the invoice that has not been communicated to you.

However you can preempt the problem by using 'Third Party Psychology', the perceived or actual use of a third party in future debt issues.

You can do this by firstly adding a clause to your terms and conditions which will allow you to recover cost via a third party and for interest to be added on overdue invoices as per your statutory rights. This will set up the inclusion of a third party in the case of future debt.

It is also an idea to refer to your terms and conditions on all of your invoices.

So what does 'Third Party Psychology' bring to the table?

  • Shows you and your company is serious about debt recovery.
  • It takes any emotion out of the process.
  • It makes everything much more 'business like'.
  • Moves the control of the situation to the third party.
  • Removes stress and allows you to get on with running your company.

Remember that you don't have to bring in a third party, sometimes the threat is all that is required.

By Kevin Bishop - Senior Partner at Town and Country Legal Services LLP