There are four simple checkpoints to making sure you are paid on time – three of them before you even make the sale. First up, put together some decent terms of trade, which you then send out to each and every customer. Next, accurately identify your customer as a legal entity and then do a credit check on them. Finally, collect your money with a defined debt-chasing programme.

Terms of trade are relatively simple – and can be kept as such. They should detail the terms under which you do business, including areas such as your terms of credit and the interest you intend to charge if payment is late. Do not make the mistake of directly copying someone else’s terms and conditions just to save a bit of money.

Identifying your customer is a tad more tricky. It is mentioned by just about every credit advisor in the book – and seems to be the least understood and most widely ignored factor. You can’t just lend money to a shop or a pub. You have to lend it to a legal entity. Is it an individual? Is it a company? Is it a brewery which owns the pub? Make sure you know who's responsible.

Credit check

Once you have identified your customer, do a credit check. And keep up to date with the creditworthiness of old customers, too. Just because they have been good payers in the past does not mean that they will not fall into difficulties in the future. If a customer has had an unacceptable payments record then refuse to take new orders or get payment in advance. Judge what each of your customers is worth in credit terms, set your credit limits and then stick to them.

There’s the rub. It is all very well talking the talk but walking the walk when you risk incurring the wrath of a major customer is another thing. Sticking to your credit limits could be more difficult than it seems. But ask yourself, is a good customer someone who doesn’t pay you? It’s a commercial decision you need to make. If you’re going to do business with someone then you have to do it on terms that you want to do business.

One way of smoothing this problem is to invest in some credit insurance. Many of the larger debt collection agencies also run credit insurance schemes whereby you pay up front to ensure that you will always receive payment for your invoices. Your premiums will depend on factors such as the time delay before payment is triggered, the nature of your business, where you do business, and the level of debt usually outstanding.