Payment terms should be clearly set out in advance and in writing so that your customer understands their payment obligations. Ensure that the customer has seen your terms of trade and has accepted the credit terms that you have agreed to offer.
Make sure your terms and conditions are watertight and entitlement to goods and services is only passed over to the customer once payment is received. That way if the customer goes bust you'll have the right to claim back your goods.
Whenever you write about payment terms, and on your invoices, include the words: "We will exercise our statutory right to claim interest (at 8% over the Bank of England base rate) and compensation for debt recovery costs under the Late Payment legislation if we are not paid according to our agreed credit terms."
Raising a further invoice for interest and late payment charges is an excellent way of gaining your customer's attention and raising the profile of your outstanding invoices.
Offer the minimum credit period that will be competitively acceptable. The longer the credit period the more chance there is that the customer's financial circumstances may change. For new customers it may be wise to take payment in advance, or a deposit on their first order.
You can give longer payment terms to reward customers for placing repeat business and paying on time.
If you're dealing with a small Limited company consider the use of a Directors personal guarantee. This is a letter to be signed by the director guaranteeing that he or she will personally pay the debt if the company doesn't.
Try to get agreement from customers to pay by electronic transfer or Direct Debit to avoid waiting for the cheque to arrive.