Most bad debt is written into the deal before the work starts. These are the terms, and the habits, that change behaviour.
Most bad debt is written into the deal before any work is done. This guide is the small number of contractual things that genuinely change whether you get paid, and the ones that feel protective but do nothing.
The single most common failure, and the one that quietly undoes everything else. Terms printed on the back of an invoice sent after the work is done are generally too late — the contract was made when the order was accepted, and terms introduced afterwards are not part of it.
To be incorporated, your terms have to be brought to the customer's attention before or at the time the contract is made: referenced in the quotation, attached to the order acknowledgement, accepted at sign-up. A term that is not incorporated is decoration, and you will discover that at the worst possible moment.
There is a further wrinkle where both sides have their own terms — each order and acknowledgement fires the other party's paperwork back, and the general rule is that the last set sent before performance begins tends to win. If your customer's purchase order says their terms apply and you simply deliver, you may be trading on their terms rather than yours without ever having agreed to.
Contract wording is only half of it. How the payment is structured often matters more than what the clause says.
Deposits and stage payments. A customer who has paid something is materially more likely to pay the rest, and you are never exposed for the full value. On a long job, staged billing against milestones caps your exposure at one stage rather than the whole contract.
A credit limit that is actually enforced. Limits that exist in the system but are overridden whenever sales ask for it are not limits. The rule that matters is what happens on the day it is breached.
Shorter terms on new customers. Thirty days is not a law of nature. A new trade account on payment-with-order or fourteen days, moving to standard terms after six clean payments, costs you nothing with good customers and screens out a lot of trouble.
Illustrative. The deposit is not just cash flow — it is the difference between a bad debt that hurts and one that does not.
A surprising share of late payment is self-inflicted. Invoices that arrive late, go to the wrong person, miss a purchase order number, or describe the work in terms the accounts department cannot match to anything get parked — and a parked invoice is not refused, it is simply never processed.
The fixes are dull and they work: invoice the day the work completes; ask at order stage who invoices should go to and whether a PO number is needed; put the PO number on the invoice; send a statement monthly; and confirm receipt of large invoices rather than assuming. None of that is legal work, and it prevents more bad debt than any clause.
The other half is behaviour, and it is cheaper. Chase on the day terms are breached, in writing, every time. Escalate on a schedule rather than on mood. Customers work out very quickly which of their suppliers has a process and which has a grumble, and they pay the first group. See credit control.
Terms, guarantees and retention of title are contract work rather than recovery work. That is Buzz Legal — the same company — on a fixed fee. We deliberately do not publish operative wording here, because a clause copied off a website without advice is how the problem starts rather than how it is solved.
Not effectively. The contract is usually formed when the order is placed and accepted, so terms first presented on the invoice arrive after the agreement already exists and are not incorporated into it. You can invoice on those terms for years and still not be able to rely on them. The fix is straightforward and costs nothing: reference your terms in the quotation, attach them to the order acknowledgement, and get the customer to confirm the order on that basis. For online or repeat trade, an account application that the customer signs or ticks does the same job. What matters is that they had the chance to read them before the deal was struck.
Up to 60 days is normally acceptable between businesses. Beyond that, the term must not be grossly unfair to the supplier, and it can be challenged — which means a very long payment term agreed under commercial pressure is not necessarily as binding as the customer's procurement team implies. Public authorities are held to 30 days and cannot contract out of it. Separately, be careful with terms that start the clock from something other than delivery or invoice — 'payment 60 days from month end following acceptance' can quietly mean 90 days or more in practice, and it is worth working out what your terms actually mean in days before agreeing them.
Where you are extending meaningful credit to a small company, yes. It is the difference between a claim against a shell and a claim against a solvent person, and it survives the company's insolvency because it is a separate contract with a separate party. Expect resistance, and expect it to be a negotiation rather than a form. Directors of decent businesses do give them, particularly on a new account or a large order, and a refusal is itself information. A guarantee needs to be properly drafted and properly signed to be worth anything, so it is not a clause to improvise — but on a large exposure it is the single most valuable protection available.
It can, for goods, in the right circumstances — and when it works it is worth a great deal, because it takes you out of the queue of unsecured creditors entirely and makes the goods yours rather than the estate's. Three things have to line up. The clause must be incorporated into the contract, the goods must still be identifiable as yours, and they must not have been sold on or built into something else. Extended and 'all monies' clauses go further but are more easily defeated by poor drafting. It is worthless for services. If you supply goods on credit and have never had your clause checked, that is an hour of a lawyer's time that could save a five-figure loss.
Treat the first few orders as an audition. Run a check on the company before you extend credit rather than after the second unpaid invoice, set a modest credit limit, and use shorter payment terms until they have paid cleanly a few times. Then actually enforce it. The most common pattern behind a serious bad debt is a customer whose orders grew steadily while their payments slowed, with nobody reviewing the account because the revenue looked like growth. A customer who cannot get credit elsewhere concentrates their buying on whoever has not yet noticed. See checking whether a customer can actually pay.
The letter-before-action checklist, the interest and compensation rules, and the escalation ladder with what each step costs. One email, no sequence.
Tell us what you are owed and who owes it. You get back what the debt is actually worth once interest and compensation are added, what we would do first, and the fixed fee for doing it.