Deposits, payment terms and late payments

Protect cash from day one

Young hire firms rarely fail for lack of work. They fail because machines are out earning while the cash hasn't arrived, and finance payments don't wait. Your deposit and payment policy is as important as your rate card.

Deposits

• State the deposit amount, what it covers and when it's refunded in your hire terms.
• Pre-authorise rather than charge where your card provider allows, so refunds are quick.
• Photograph condition at delivery and collection so deposit deductions are defensible.

Trade accounts

Trade accounts win repeat business: contractors don't want to pay by card every week. Make opening one a short, written process:

1. 01

   Application form

   Company details, directors, trading address, bank details, references.

2. 02

   Consent to credit check

   Included on the form.

3. 03

   Credit check

   On the company and, for small firms, the directors.

4. 04

   Set a limit and terms

   Start low (e.g. two weeks' hire) and increase with payment history.

5. 05

   Signed terms

   Account terms and hire conditions signed before the first hire.

Credit checks

Use a commercial credit reference agency to check limited companies and sole traders. Look at the credit score and limit, filed accounts, county court judgments and how long they've traded. Re-check active accounts at least once a year and before raising a limit.

Payment terms

• 30 days from invoice is standard for trade accounts; if no terms are agreed, the law applies a 30-day default for business customers.
• Put the due date and your bank details clearly on every invoice.
• Stop further hires on accounts that go over limit or overdue; your booking system should flag them.
• Long hires: invoice in advance each week or month.

When customers pay late

1. 01

   Day 1 overdue

   Friendly email with the invoice attached.

2. 02

   Day 7

   Phone call. Put the account on hold.

3. 03

   Day 14

   Formal letter stating you'll claim statutory interest and compensation.

4. 04

   Day 30

   Final letter before action; consider a collection agency or small claims.

5. 05

   Always

   Keep notes of every contact.

Under the Late Payment of Commercial Debts (Interest) Act, you can charge another business statutory interest of 8% plus the Bank of England base rate, plus fixed compensation of £40 (debts under £1,000), £70 (£1,000–£9,999.99) or £100 (£10,000 or more), and reasonable recovery costs.

Late payment interest calculator