How can I protect myself from late payment problems?

I’ve started up as a supplier to business customers. How can I best protect myself from late payment problems?


The obvious way to ensure payment is to have COD terms – but many customers aren’t prepared to agree to this, particularly when you are only starting out as a supplier, and the balance of power is in their hands.


That said, the practice of requiring COD for the first couple of deliveries before switching to credit has worked for many suppliers.


But assuming that you have to provide credit terms, the following tips should help to minimise bad debts.


Firstly, ensure that the customer fills in a credit application and provides full details of the trading entity – especially the ABN, so you know who you are dealing with. (You can check the company or individual behind an ABN online at


Next, the credit application should also ask for trade references. Most people will only put down the names of suppliers who they have a good trading relationship with, but not everyone is that smart!


If you have other contacts in the industry, you should check with them about the customer’s payment history. Recalcitrant debtors are like leopards, they don’t change their spots.


Do similar background searches on the individuals behind the customer – and your standard credit application form should also include a privacy statement which allows you to do a credit reference check on these people, as well as the entity requesting credit.


Of the same vein, you should also include a directors’ guarantee section in the credit application – although don’t be surprised if most customers leave it blank or cross it out!


Once the customer owes you money, ensure you start chasing the debt as soon as it is past due. If someone thinks you don’t need the money, you will go to the bottom of their list for payment – even if they do intend paying eventually.


The follow up does not have to be nasty: for example my accountant’s accounts receivable clerk rings up and says they are working out their cashflows for the next month, and would like to know when they should expect payment.


Finally, don’t let your best customer become your worst customer – the more indebted a particular customer is to you, the less you can afford to offend them, and the harder it is to chase them hard for money.


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