Minimising Bad Debt
Improving cash flow & avoiding bad debts
Liquidity is the key to surviving a recession and to the future prosperity of your company. Many businesses fail, not because they are unprofitable, but because their customers do not pay their invoices when they become due or at all.
According to the Department for Business, Innovation & Skills, 10% of all corporate failures arise from not being paid on time. In our experience these figures are probably understated.
Below are a few tips to help reduce your bad debts and improving liquidity.
For further information contact our debt recovery experts based in Glasgow in Scotland today on 0141 332 0915.
It is difficult to turn away new business and it is very easy to take on bad contracts which may ultimately put your business in jeopardy.
When new business opportunities present themselves you should take a step back and assess the opportunity on cold harsh commercial grounds. You must ask yourself some questions. Can the customer pay? Will he pay and when?
Always beware a new customer with a big order. Ask yourself why is he coming to me with this large order at this time? Has he been refused credit by his previous suppliers? Is he a slow payer? Is he a difficult customer?
Credit Checks & Due Diligence
A number of simple and cost effective steps can be undertaken to confirm that your customer can pay.
Most High Street banks provide credit-checking services. Barclays Credit Focus offers a credit checking service to customers for £10 per month or £15 for non-customers. The service allows unlimited checks. The Royal Bank of Scotland runs a similar service called Business Status Alert.
Although the prospect of new business is alluring, a few phone calls can establish a customer’s credit worthiness. Phone his customers or even your competitors to check payment history.
If a new large customer appears out of the blue you should be on guard. Rather than being the customer who will transform your business he may be the customer who brings your business down.
Being put in credit
Some orders may require large outlays on materials and in labour. If this is the case get a deposit to pay for materials.
Retention of Title Clauses
A retention of title clause means that ownership of the goods supplied only passes upon payment for those goods. Retention of title clauses can work. We have experience of companies going into administration or liquidation where the goods have been returned to the supplier or paid for where they have not been sold onwards by the customer. Administrators are bound by retention of title clauses and are familiar with them and their effects.
We are happy to look over your business terms and conditions and advise you upon suitable and effective retention of title clauses.
Large customers often have to deal with numerous invoices from various sources. To ensure quick payment invoices should clearly set out the goods or services supplied and where and when they were supplied. Invoices should be sent to the correct person. Invoices which are unclear or have to be queried by your customer will be put to one side and payment delayed.
Make it clear on your invoices that payment is expected within a certain time period. Thirty days for payment is reasonable.
Make it clear that late payment will incur interest charges (currently 8.5%). This often serves to encourage early payment from customers.
Do not be afraid to discuss payment terms with customers. Emphasise the importance of early payment. Tell customers that goods and services are priced on the basis of early payment. Customers understand the need for payment. Do not be shy in talking about money – your customer will respect you for it and will be less likely to delay payment if he knows it is going to result in assertive collection of debt.
Bad Debts – getting to the top of the queue
Our experience is that the longer a debt goes unpaid the less likely it will ever be paid. The key is to get paid and quickly.
In order to maintain liquidity it is important that debts do not become aged. As time passes the debtors urgency to pay diminishes.
Diarise invoices. Once an invoice becomes overdue automatically send out a reminder. Change the type on the invoice to highlight it has become urgent and overdue. Follow up all reminders with a phone call. Use these calls positively: ask about the service or goods supplied. Was the customer satisfied with the service; is there a problem with payment?
Always speak to someone who can sanction payment and do not be fobbed off by excuses – get to the top of the queue.
If payment is not forthcoming then ask us about our debt recovery service.
For further information on our debt minimisation services please call John Carruthers on 0141 332 0915 or 07764 253 998
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