The governments recent pledge to settle suppliers invoices within 10 working days of receipt is a powerful and practical way of helping businesses with cash flow in these tough economic times.
Solicitor Mark Gardner, a partner at Latimer Hinks, is calling on private sector organisations to follow the governments lead and help their suppliers by paying promptly.
"Having a good cash flow is one of the strongest defences there is against business failure," said Mr Gardner. "Most failures take place when a business simply runs out of the cash it needs to cover its day-to-day costs, such as wages, overheads and other debts.
"By paying suppliers promptly, customers and clients can do a great deal to protect them against failure, so benefiting everyone by keeping people in work and money flowing in the economy."
Mr Gardner said that paying within 10 days was by no means possible for every business, but at the very least clients should try to abide by their suppliers terms, which most typically request payment within 30 days.
He added: "On the other hand, suppliers can do much to help encourage prompt payment. This can involve some straightforward actions, such as issuing a contract to protect all the work you do and ensuring as quickly as possible that the client is happy with the product or service youve provided. You might also consider flexible terms, such as accepting part-payment upfront, with the balance to be paid at a mutually acceptable time. If you simply dont have time to chase debts, it may be wise to outsource your credit control."
However, even following these guidelines does not altogether eradicate the risk of bad debts, and there may still be cases when court is the only final option."In such cases, make sure you know first if the customer has any assets to pay," warned Mr Gardner. "There is no point in incurring the costs of proceedings if they have nothing."