How to collect payment faster and get paid
Controlling credit is an important issue for any business in Thailand, unless you predominately deal with cash. Few companies are lucky enough to have customers who pay their bill as soon as you raise the invoice, and for most small business owners this is not the case. More often than not successful cashflow management can be the difference between the success of your business in Thailand and its failure. Thankfully there are steps you can take to ensure your businesses finances remain on track, and collect payment faster from your customers. If you do have to offer credit to your customers, allowing them to pay after they have received your product or service, it pays to vet them first.
The checks you make on any customer will depend on the amount of credit being offered relative to your overall business turnover. If it’s a relatively small order the investigation may cost more than the profit you make. So you’ll need to decide whether you are willing to accept such risks. Often the franchisor will be able to offer some guidance with this and they themselves should have carried out extensive checks for any national work that you are offered so that they have a good understanding of that company’s payment policy.
For significant customer sales you will need to carry out your own checks. These checks could include bank references, trade references, reviewing the latest financial accounts, a credit reference agency search or even a site visit. You may wish to start a new customer on a relatively low credit limit to monitor their payment history before you consider increasing it. But remember you will need to carefully assess the risk each time you review a customer’s credit limit, and determine if you believe you will be able to collect payment from them.
Some alternative payment options you may wish to consider are cash with order, cash on delivery, payment after a specified number of days, or monthly credit with payment by a certain day in the following month. Legally, small businesses can charge interest on late payment of invoices, although in practice this clause is infrequently enforced due to the fear of losing future business with a customer. One way to encourage early payment is to offer a cash discount, although you will need to have good systems to closely monitor this and to make it clear that customers are only entitled to the discount if they meet the conditions you have offered.
Prompt invoicing is essential. I hear horror stories from businesses that only raise their invoices once a month and they then wonder why they have serious cashflow difficulties. You should, wherever possible, invoice on the day the service is provided or the goods are delivered to your customer in Thailand. This is a sound financial practice which should take precedence over other administrative duties you may have that day. Failure to do this creates the impression with your customers that you don’t keep tight credit control and you won’t mind waiting for your money. Invoicing fast shows you’re serious in collecting the payment. Credit terms should also be prominently displayed on the invoice.
A follow up phone call should be made after a few days to ensure that the customer is fully satisfied. This will give to an early opportunity to rectify any problems but also eliminates an often used excuse for not paying the invoice on time. Make sure that you record details of who you spoke to. As soon as the invoice deadline passes you should send a polite fax followed up with a letter chasing payment. If you don’t receive payment or a response within one week, fax again and follow up with a letter sent by recorded delivery.
A phone call should follow to find out why you haven’t been paid and try to get your customer to commit to paying as soon as possible. As you have already confirmed that they are satisfied with the goods or services they can’t now say they have a problem or they didn’t receive them. If all else fails you may want to consider whether you wish to continue doing business with this customer and you could take steps to freeze any existing credit line until the outstanding matter is resolved.
Of course you could go and collect the money in person and bank the cheque immediately. If you do that you’ll need to make sure that it has been dated correctly, signed by the customer and the words and figures on the cheque are both correct. If this fails, then ask your solicitor to send a formal letter threatening legal action to recover the outstanding debt. If you’re dealing with an individual you may decide to start bankruptcy proceedings or if it’s a company you may begin action to wind up the firm.
Take your solicitors advice, which may include using the small claims court or even walking away from the debt if it is too expensive to pursue, or too unlikely to succeed. It may seem an obvious point to make but if the relationship gets to this stage the time has come to stop doing business with the customer. You should also take stock of your credit assessment procedures to see if there are any lessons you could learn to avoid similar problems in the future.
Let your bank manager know at an early stage if you are experiencing cashflow difficulties or are having trouble collecting payment. They may be able to offer you support and guidance to assist you through this period. By following these simple steps you will avoid most of the serious credit control issues and get paid quicker.
Head of Franchising
Lloyds Banking Group
Tel: 07802 324018
Richard heads up the Lloyds Bank franchise team and is a regular contributor to trade publications and national press. He regularly speaks at franchise seminars and exhibitions.