Why unpaid bills are every business’s Achilles heel… and how to avoid them

Want to hear some scary figures? UK companies are currently close to £400bn in debt – easily a record figure. Consumer credit is currently standing at £200bn, although that doesn’t include mortgages. And both figures are rising.


Want to hear some more scary figures? Over 17,000 businesses went into liquidation last year, that’s one in every 213 companies, while personal insolvencies were just below the 100,000 mark.


In a tight economic situation, it’s hardly surprising that holding onto payments has become standard company policy with so many firms, and why extracting unpaid bills from customers can be such a time consuming – and often unfruitful affair. Why pay interest on your borrowing just to keep a supplier happy?


The problem is two-fold. Firstly, holding onto bills for as long as possible is still seen as acceptable practice – even for profitable companies with cash in the bank. The Government has been making a lot of noise on bringing in new codes of practice, but these are still not in place; and, when they come in, who will be enforcing them? For a far more sensible approach, just look to Germany.


Secondly, when it comes to recovering overdue debts, suppliers are effectively fighting with one hand tied behind their backs. The debt recovery process is long, expensive and ultimately uncertain.


The fees for recovery are typically between ten and 15% of the amount owed – payable upon recovery with ICSM (but by the debtor wherever possible).


If it gets to the next stage, there are court fees to stump up. You might need to get a solicitor involved if it’s a complicated case. Should it go to a hearing, there are fees for that too. And you still haven't got a penny back on your debt. Next stage, arbitration – more fees. The debtor could decide to go belly up – and rather than let them go on doing the same to others you might take out a winding up order – that can readily set you back £5,000.


For many companies operating on tight profits, you might well decide that you're chucking good money after bad, bale out early in the process and lick your wounds.


Is using a debt recovery company a good idea?


Or you could look on line and find a debt recovery company promising to take the weight off your shoulders and do the chasing for you. But here I’d like to add a note of caution about using a debt recovery business – and I run one.


Sadly, while there are plenty of good operators in this field, this sector has been mired with the appearance, disappearance and then reappearance of what I describe as “Lazarus” debt recovery companies. These are operations set up by shady individuals which offer the Earth, take up-front fees from unsuspecting companies who are owed money, do next to nothing for it… then disappear off the radar… only for the same individuals to magically come back to life under a different company name a few weeks later.


Through our debt monitoring and credit reference service, we are regularly told about these companies, and they not only give debt recovery a bad name but sell false hope to honest, cash-strapped businesses.


So how can you recover a bad debt?


As annoying as this sounds, the best recourse is not to get landed with an overdue bill in the first place. And while it’s not possible to eradicate the possibility, you can reduce the chances significantly through taking several small but sensible steps.


  • Check every customer’s credit worthiness – not just at the outset of doing business with them, but at regular intervals thereafter… perfectly sound companies do sometimes start to struggle and you don’t want to be the one holding the debt if they are playing “pass the parcel” with their borrowing. This can be done by subscribing to a service like ICSM which monitors every company’s financial returns as well as keeps tabs on any problems being reported by other suppliers – and costs from just £95 a year.


  • Next, establish reasonable credit terms with every client – and stick to them. If a new client won’t buy from you because of your terms, you're better off without that client. And if you have to chase a client for money owed, and do it firmly, politely and professionally, you're unlikely to lose your customer.


  • If the client hasn't paid, then start the recovery process earlier rather than later. Kick off with the letter that lets them know they will be incurring a penalty and be put on stop and let them know you will see the process through. Apart from anything else, if they are struggling it’s likely you will get paid ahead of other creditors.


  • If you are going to use the services of a debt recovery company, choose wisely. Look at their modus operandi, their terms and their trading record. Any business in this field worth their salt will not ask you to pay anything upfront apart from standard court fees. The ones to trust are those whose fees and outgoings are totally transparent and based on results plus incurred costs. A good recovery company will also look at a debtor’s current situation and give you an honest appraisal of your chances of ever recovering your money.


The challenge for every business is to win new customers as well as keep current ones happy. But that should never be achieved by being lax on your credit control, and at the cost of your own business going down the pan...

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