Standing Orders
A question we often get asked;
"I set up my company as a sole trader, but
due to expansion I would like to trade as a limited company. My bank tells me that
if I change to a limited company, I will need a new bank account. The problem is
that most of my customers pay by monthly standing order and I don't want to unsettle
existing arrangements for fear of losing business. Is there an alternative?"
A limited company is a separate legal entity, distinct from its shareholders,
directors and employees. For this reason, you will need a new bank account for the
new company.
You should consider all the implications for your business, as incorporation
has a number of advantages and drawbacks. We would recommend that you seek advice
from your accountant and Legal professional. For example, your customers will be
buying from a different legal entity, which may affect their contracts with you. If
you do not take the appropriate steps, the contracts may be unenforceable.
Writing to your customers does give you the opportunity to present the business
in a positive light. If customers believe the business is expanding and doing well
they are more likely to be loyal. It also gives you the opportunity to promote other
services you have to offer.
Customers are more likely to complete the paperwork if you make the process as
easy as possible. If you send them a pre-filled form and a prepaid envelope so they
simply have to sign and return it, you are much more likely to get them back without
having to chase them.
Standing orders are not ideal for collecting payments that may vary over time,
as you will always need to contact the customer to obtain their specific authority
to change the payment. A better alternative is to collect payments by Direct Debit.
Direct Debits
Direct Debits put you in control of the payment collection process and will
enable you to make amendments without the need to obtain your customer's signature
on each occasion.
To be accepted into the Direct Debit scheme, your business must have an
authorised sponsor, such as your bank. Before agreeing to do so, the bank will need
to ascertain that your company meets the legal, administrative and financial
requirements of the scheme. Talk to your bank about the Direct Debit scheme and how
it may benefit both your business and your customers.
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