Dealing with Bad Debts and Cash Flow Problems
Business Recovery Specialists: Dealing with Bad Debts and Cash Flow Problems
When it comes to insolvency, and all the stress and pressure that goes with it, here at Business Recovery Specialists, our aim is to work with businesses to help them recover before insolvency looms. That might be easier said than done, because insolvency can strike when least expected. For example, when a major contract is lost or a price shock causes raw material prices to rise.
In our experience, however, there are usually some key warning signs of approaching problems that can lead to insolvency. If you can spot these signs and take early action, the chances of a successful and sustained recovery are greater. This article looks at the warning signs that relate to non-payment of invoices, and how to deal with it. If not dealt with, non-payment will quickly cause cash flow problems. In turn this can harm your business’s ability to pay its creditors.That is the beginning of the road to insolvency.
Some key warning signs of late or non-payment
What businesses want is regular and guaranteed payments for the work they have done or the goods or services provided. We know that the typical 30 day payment terms are not always adhered to. However, so long as a customer is paying in the way that they always have, and that way is acceptable to your business, then things are probably okay. It’s when a customer starts behaving differently that you should take notice.
- If customers who are regular and trusted payers start paying later than normal, ask for extended credit terms or perhaps miss payments, then that is a warning sign that something might not be quite right with their business. It certainly is not something that you should let lie for and hope that it will be alright.
- The alarm bells should start ringing even louder when calls or emails from your credit control department to the late/non-paying customer are ignored or not returned. Or if they are answered with promises of payment ‘by the end of the week’, which never actually materialise.
- Also look out for news about the late/non-paying customer on line, especially Twitter and Facebook. They can be early warning signs if the customer is encountering difficulties that are being complained about on-line.
What Can You Do To Address the Situation?
If you have spotted the warning signs, then action needs to be taken, otherwise late payment can become a bad debt. If that bad debt is big enough, it can cause cash flow problems, which can then lead to difficulties for your own business.
Ideally a system needs to be put in place, which we can help you with, that addresses a late/non-paying customer on an escalating scale. For example:
- Keep a watching brief. This is really the way all customers should be viewed. It means keeping on doing business with the late paying customer, providing they have responded honestly and positively (i.e. made the payment as promised) when chased about late or non-payment.
- If payments are consistently late, then it is time to take some action. Perhaps consider a factoring arrangement so that the late payments do not disrupt your cash flow. There are many factoring companies out there, all offering slightly different terms and prices. We can help you find the best one for you.
- If payments are being regularly missed and communications have broken down, then stronger action is required. This might include sending solicitors letters and threatening a winding-up petition.
Whatever you do, it makes sense to have a system in place. This can contain losses and cash flow problems are minimised, allowing your business to cope and recover.