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Credit control tips: Terms and conditions

One of the basic – and often overlooked – factors that can affect a company’s profitability is your company’s terms and conditions of trading. Read our ten top tips to help you get them right and maintain a healthy cash flow.

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Before supplying or accepting goods and/or services you need to make sure that you are aware of the conditions to which you are committing the company.

Make sure that your standard terms and conditions of credit (i.e. ‘30 days from date of invoice') are clearly stated. This should usually be on the reverse of any quotations with a clear message on the front that they will apply to any order resulting in acceptance of the quotation.

Submitting your terms and conditions with an invoice is usually too late in the event of a dispute. Make sure that your sales representatives and accounts staff and all other relevant individuals are aware of your terms and conditions.

If you sell via your website or a catalogue, make sure you add your terms and conditions here also.

Distance selling is also covered by further regulations, The Consumer Protection (Distance Selling) Regulations 2005. Ensure you make regular checks on the credit rating of your customers. Remind your customers of the Late Payment of Commercial Debts (Interest) Act, which gives you the right to apply interest to overdue accounts.

This is usually a very effective way of encouraging speedy payment although care should be taken not to alienate customers unnecessarily. You should include a ‘retention of title' clause in your contracts. It is important be able to recover your products from customers which are identifiable as yours and for which payment has not been made. Although a last resort, this clause may help with minimising the potential loss.

Always check that you have not become bound by your client's terms and conditions. Large companies frequently arbitrarily impose extended terms of payment. These can considerably reduce your profit margins or wipe them out altogether after taking into account overdraft charges. If you explain that these could cause you a problem, it may still be possible to obtain early payment from your customer if your account is not a major part of their purchase ledger.

To encourage prompt payment, it may also be worth offering a discount for those customers who pay before the amount of days stated in your terms and conditions.

Invoices should always be sent when the goods or services are provided. Some smaller businesses still dispatch invoices on a weekly or monthly basis, unwittingly giving clients an opportunity to obtain extended credit.

Disputes over terms and conditions can often be prevented or minimised by keeping in regular contact with key decision-makers in your customer's business, i.e. their accounts department. This relationship can often influence payment priorities, particularly with smaller businesses.

Members of the Forum can download free credit control templates, including sample terms & conditions, or call us on 0845 130 1722 for further advice and information.