Protect your business from unpaid and bad debts.
How can you protect your business from unpaid and bad debts
Protect your business from unpaid and bad debts.
Businesses can sometimes get carried away with obtaining and preserving new customer contracts, that they forget to prioritise key aspects of their own business, such as maintaining good cash flow.
Cash flow is and has to be a significant priority for all businesses, especially in the current economic climate. Maintaining good cash flow often entails a long-term and continuous investment of time and sometimes money. However, it sometimes gets overlooked, leading to a business experiencing financial hardship.
One way to retain good cash flow is to ensure that your business is protected, as much as it can be, from unpaid or bad debts. This means doing everything you possibly can to ensure that you are paid for the services or goods you have provided, within the agreed payment terms.
Unpaid debts are those which have arisen due to lack of payment from your customer and therefore require active credit control and sometimes debt recovery. Bad debts arise when an unpaid debt becomes unrecoverable from your customer, and they then become a cost, and a problem, to your business and cash flow.
To try and avoid bad debts, you should try and improve your management of unpaid or even slightly late debts which reduces the risk of later having to handle a bad debt, although it is not always possible.
Here are some tips to help you protect your business from unpaid and bad debts:
· Implement standardised, efficient, and effective credit control and debt recovery policies, and ensure that all members of the business follow them.
· Profile your customer – Who are they (full legal entity name)? How long have they been trading? Do they have good accounts systems in place? Do they have their own terms and conditions they are trying to enforce? You need to ensure that you not only understand them, their business and capabilities but also their working practices and how they operate. This will give you a good understanding of their ability to pay their debts, as they fall due.
· Ensure your terms and conditions (including payment terms) have been served and agreed upon by the customer.
· Keep accurate records and documentation – an effective paper (or e-paper) trail may help you recover an unpaid debt or resolve a dispute further down the line.
· Modify your invoices so that they include, as standard, payment terms (and due date if applicable) as well as details of how to pay. This makes it easier you’re your customer to pay swiftly.
· Send an automatic reminder or statement of account to your customer. This is evidence to the customer that you are efficient in credit control practices, and are likely to react to a late payment immediately.
· Incorporate a contractual interest clause in your terms? This sometimes acts as a preventative clause to avoid unpaid debts. If you do not have a contractual interest clause in your term, you may be entitled to recover interest on any unpaid debt pursuant to the Late Payment of Commercial Debts (Interest) Act 1998 (as amended).
· Act promptly and professionally with credit control and debt recovery.
· You may choose to outsource your debt recovery work to professionals, who are experienced in recovering unpaid debts, and they will also seek to recover any contractual interest and legal recovery costs. This releases some of your time to concentrate on other key aspects of your business.
And remember, your business has to be the most important business you work on daily. Small and effective improvements to your policies and practices will help the overall efficiency of your business.
We offer a fixed fee debt recovery service to assist you with recovery of overdue debts and we aim to recover any legal recovery costs from the debtor, pursuant to adequate terms or statute.
We also offer a fixed fee credit control review, whereby we would collect an overview of your practices and policies and look at ways to standardise, reinforce and refine them. Any additional recommendations to help improve your practices can be provided within a bespoke package, and we can work with your staff to help expand their skill set if needed.
Contact n.gates@woodstocklegalservices.co.uk for advice and services if needed.
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