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Protect Your Business-Survival of the Fittest? In Recession, Survival of the Cash Focussed

#ProtectYourBusiness

“A sale is a gift until the money is in the bank.”

Those were the opening words of my Lecturer on the subject of Trade Debtors when I studied for the Chartered Accountancy exams. I’ve used them countless times since in training Collections staff.

The same Lecturer also explained how many profitable businesses failed because they didn’t manage their cash flows whilst others survived years of annual losses in recession by controlling cash flows aggressively until their market picked up.

So unless you intend gifting your goods and services to your customers, how do you ensure that you get paid, in full, on time and protect your business?

Protect-Your-Business-SGP-Debt-Recovery

Is your customers credit worthy?

There is no sure fire way, but follow the old adage of “forewarned is for

earmed” as a good start point. You have to do your homework – is that customer you are giving credit to actually credit-worthy?

There are 3 stages to consider:

  1. The decision whether to give credit
  2. During the period of credit
  3. Dealing with overdue accounts.

The decision whether to give credit

First think how much credit you are giving. What if you didn’t get paid? Could your business survive a bad debt of this size? If the answer is no, either take a large deposit or decline the business – you are gambli

ng your company’s future on the transaction otherwise.

 

Credit-Check your customer

I usually tell clients that if it looks bad then it probably is and if it looks good it still may be bad (the information can be dated). There are a few exceptions – I used to use Chelsea FC as an example at the time when the funds provided by its’ owner were in its’ accounts as loans. It had a zero credit-rating but was perfectly solvent and able to pay its’ bills when due.

Exposure to bad debt

Consider also your total exposure to bad debt, your own financial strength at the time and your prior experience with your customer.

During the period of credit

Invoice promptly. If there are specific terms in your contract, ensure you comply. Ensure that you have confirmed receipt of your invoice and that it has been passed for payment. Otherwise you will fall foul of the “we never received the invoice” standard answer when you first chase it as overdue.

Check whether there is any dispute on your invoice before its’ due date. Deal with these during the credit period or it will delay you receiving payment.

Dealing with overdue accounts

If you have done all the above, you will keep late payers to a minimum. Although to protect your business you will still require strong credit control and a back-up strategy for when the debtor ignores your credit control.

Methods to Protect Your Business

Calls have more impact than letters, which are frequently “filed” in the bin. Chase promptly and frequently. Give a deadline before taking recovery action and stick to it. Enforce your rights to statutory compensation and interest under the late payment legislation if they do not pay you at your first chase.

Most importantly, have your back-up in place. It is extremely useful to have a good quality debt recovery company already in place. Then you can specify exactly who you will pass the debt to if not paid promptly rather than that “you will take legal action”. Most debtors know you won’t want to spend the money on a County Court action.

SGP offers a tailored debt recovery service to clients across industry types. To discuss how we can help you, at no cost and no obligation, please call us. – 08444 120 852

Steve Fraser ACA – Finance Director

 

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