You are not likely to hear a customer say that he is short of money, and even less likely to hear that payment cannot be made because he does not have sufficient funds. You are more likely to hear weasel phrases such as ‘temporary liquidity imbalance’ or ‘cash-flow disequilibrium’. Such phrases can mean one of the following:
- The customer is lying and can pay if he wants to
- The customer is having problems and finds it inconvenient to pay now, but can do so if he has to
- It really is impossible for the customer to pay now
Needless to say, it can be difficult to know exactly what is the true position. However, whatever the exact situation, you are legally and morally in the right. You have fulfilled your side of the bargain and the customer has not.
It is normally wise to be sceptical about an inability to pay. A customer usually can pay if he has to, perhaps with difficulty and perhaps at the expense of putting off another payment. It is quite often a competitive situation, and the supplier who applies the most pressure may be the one who is paid first. You should be aware of this, and perhaps you should decide that you will be the supplier who applies the most pressure. After all, the electricity bill is almost certain to be paid. There is a reason for this and it is that the sanction of disconnection is genuinely feared.
It is as well to be aware of the law relating to wrongful trading by a company. Part of it may be summarised as: ‘Directors may be disqualified and be personally liable for debts if they carry on trading when they know, or ought to know, that there is no reasonable prospect of avoiding insolvent liquidation.’ If you are told that payment cannot be made now, you should insist on speaking to a senior person, and you should make sure that he understands the seriousness of the position. You are very unlikely to be told that you will never be paid.
If this is said, you are facing liquidation or insolvency and a possible bad debt. Instead you are likely to be told that you will be paid at some time in the future, and you are likely to be asked to be patient. If you are a regular supplier, you may be asked to maintain supplies during the difficult period. Your reaction will partly depend on your knowledge of the customer and the details of the proposals that you will be given. You should ask for as much detail as you consider necessary and reasonable, and then exercise your judgment. Some customers do have a bad patch, come through it and deserve support. Other customers are flawed and have problem after problem after problem.
Needless to say, if you do agree to support a customer, you should continue to monitor the situation very closely. It is a very good idea to ask the customer to let you have post-dated cheques in support of the proposal that he makes. This idea is likely to be resisted, but it is a very reasonable request and an indication of the customer’s confidence and good faith. If the customer does not have enough confidence to give post-dated cheques, why should you have the confidence to support him? This is a guest post from Anna at Aor Business Insurances.