IT Contractors warned to credit check clients as "crunch" bites

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IT Contractors warned to credit check clients as "crunch" bites

Published on Jul 2, 2008

Following a marked increase in companies going into administration, the PCG has provided some practical advice for contractors to ensure that they protect themselves from late paying or non-paying clients.

The PCG is advising contractors to:

- Carry out an early risk assessment - carry out a credit check on those businesses they are engaging with and negotiate terms of payment accordingly.

- Issue invoices regularly and keep the time allowed for payment as short as possible in order to keep any losses to a minimum.

- Never ignore a late or missed payment. Have a strict credit control procedure and stick to it. If payment is late, contact the business immediately and endeavour to find out what the problem is. Suggested questions to ask are: why is the payment late? When can I expect payment? Can you transfer the payment by telegraphic transfer today?

- Continue to telephone and chase your payment if it doesn't arrive when promised.

- Review contracts and ensure it includes an option to terminate the contract on the first missed payment.
If dealing with a registered company, it is possible to download the most recent set of company accounts from Companies House.

You can also carry out a credit check right away on our sister site, Bytestart.

Some telltale signs that a company may be in financial trouble are:

- Insolvent balance sheet
- Loss-making profit and loss account
- Large inter company accounts
- Long term creditors shown with share capital
- Directors or connected persons' loans increasing over time.

Other warning signs include: a request for a change in business terms, especially in payment terms; difficulty in contacting key personnel; not receiving and dealing with phone calls; low staff morale and/or high staff turnover; chaos in the accounts department; rumours in the marketplace.

If a business continues to trade despite the onset of administration or bankruptcy and contractors are continuing to work with the business, it is vital that the terms of payment are agreed with the administrator or trustee in order that payment is received for work done.

Further Resources

You can read our tips to avoid late paying clients.

You can carry out a credit check right away on our sister site, Bytestart, here.