As business owner , how do I make sure my invoices get paid?

As an attorney, I notice that service providers or suppliers frequently make arrangements whereby they provide goods or services to their customer without having paid their invoices or having the assurance that their invoices will actually be paid. This is dangerous, because if the buyer goes bankrupt, the supplier or service provider can generally whistle for his or her money.

It is also a shame because this so-called insolvency risk - the risk of receivables going unpaid due to bankruptcy - is relatively easy to avoid.

How to. In this article, I provide some helpful tips.

1. Prepayment/advance payment

The simplest way to avoid insolvency risk is to request payment prior to the delivery of services or goods.

This is not as unusual as it may seem. For example, many orders over the Internet are paid in advance. As a result, the insolvency risk lies not with the supplier, but with the buyer.

The same is true in the service sector where advance payments are often used. This means that the client pays an amount before the service provider starts work. This way, the service provider does not run the risk that invoices remain unpaid. After all, he may set off his invoices against the advance paid and any surplus is refunded.

Many business owners feel embarrassed to ask for payment in advance or do not consider it possible from a commercial point of view. However, often more is possible than people realize in advance and, moreover, what is not done is always wrong!

In addition, shifting the insolvency risk can be used well in negotiations, for example, to negotiate higher compensation. This is often insufficiently realized.

2. Equal crossing

Sometimes a buyer, in turn, will not be willing to run the insolvency risk. One can then fall back on - in fact - the fairest situation, namely "equal crossing": the buyer pays for the goods as soon as he has taken delivery of them. Thus, in this situation, both the supplier and buyer do not run an insolvency risk.

"Equal crossing" is particularly possible in delivery of goods. Delivery of services lends itself more difficult to this.

3. Short payment terms/term payments

If it is not at all possible to avert insolvency risk altogether - for example, from a commercial point of view - it is important to minimize this risk.

This can be done, for example, by keeping the period between delivery (of services and/or goods) and payment as short as possible. That way, there is the greatest chance that invoices will not go unpaid.

Working with installment payments can also be considered. This is often done in the construction industry. The insolvency risk is then limited to at most one invoice.

However, in both cases - unlike situations 1 and 2 - there is indeed an insolvency risk faced by the supplier. Indeed, even before the expiration of the short payment period or before payment of an installment, the buyer can go bankrupt.

Can the risk of remaining unpaid also be mitigated in these cases? Yes, this can be done by stipulating collateral.

4. Collateral

Security rights provide the creditor (the supplier or service provider) with security for payment of its claim against the debtor (the buyer). The purpose of security is that even if the buyer goes bankrupt, the outstanding claim is (mostly) paid.

This can be done, for example, by means of a bank guarantee. In that case, the bank pays the creditor's outstanding invoices if the buyer goes bankrupt.

Another example is retention of title. In this case, the supplier remains the owner of the goods he has delivered until his claims are paid.

Other examples of collateral include (among others) sureties, joint and several liabilities, corporate guarantees, documentary credit, liens and mortgages.

It depends on each situation which form of security is the most appropriate. It is important that the collateral is negotiated in the right way. If this is not done in the right way, the consequence is that the security cannot be invoked. In that case, the invoices generally remain unpaid as well.

5. Directors' liability

Even if the buyer is bankrupt and no security has been established beforehand, there are still possibilities to get the claim paid. Indeed, under circumstances, the director of a bankrupt company is personally liable to the creditor for the unpaid claims.

This is the case, for example, if the director knew or should have known when entering into the agreement that the company would not pay. Another example is if the director caused or allowed the company not to pay.

Conclusion

The thrust of this article is to ensure that invoices are paid even in the event of the buyer's bankruptcy.

In my opinion, prevention is always better than cure: if the supplier or service provider can place the insolvency risk on the buyer - for example, by requesting payment in advance or working with an advance payment - then that is definitely preferable.

If that fails, the insolvency risk can be avoided by making payment of the invoice simultaneous with delivery of goods.

If even that fails - and the supplier or service provider therefore runs the risk of insolvency - it is important to keep the risk as small as possible. This can be done, for example, by working with short payment terms and installment payments.

It is also important to stipulate security in these cases. These securities ensure that the claim is paid even in the event of the buyer's bankruptcy.

If no security is stipulated and the company is bankrupt, the director may be liable in private for the unpaid invoices.

In short, there is often more possible to get invoices paid than people initially think!