- 1st April 2017
- Posted by: Admin Team
- Category: Bad Debt, Bad debt write offs, Blog, Commercial debts
How can I protect myself in the future from bad debt in my business
Very few businesses of any size can boast of being immune to the scourge of bad debt, but for small and medium sized ventures this can be the start of a very slippery slope. With cash flow on a knife edge, SMEs are particularly sensitive to clients who delay paying or go under, unexpected costs or suppliers who let them down.
So how can you protect your SME from bad debt?
If you believe even for a second it was a financial management error by your own team, then getting outside expert help of investing in advanced training would be a solid way to making sure it never happens again. It’s certainly never enough to believe “it won’t happen again” without making tangible steps to ensure that.
Sadly though, much of bad debt comes from circumstances out of the control of the management team the knock on effect of some other organisation’s problems. For many SMEs, taking legal action is beyond their resources.
Each year, around 100,000 UK companies go out of business, owing billions of pounds.
To protect yourself, being acutely aware of your clients not just the size of their orders is paramount. Don’t ever hesitate to do thorough and regular credit checks on customers. Also, build credit limits in to contracts. If they are new customers, then be honest and robust in setting the credit limit low, with a sliding scale as your confidence grows. Sometimes caution outweighs flattering your new contact.
Keep a keen eye on whether customers are paying regularly, and what else they have going on. Their business, is YOUR business.
Make sure you Terms & Conditions are watertight it’s amazing how many companies even after getting burnt forget to update them as they change and develop. You have a statutory right to charge interest on late payments.
You should also urge customers and suppliers to contact you promptly with any issues or concerns. Forewarned is forearmed. Transparency in business dealings and a good working relationship can’t be lost as modern technology takes over many of the buying processes.
There are various debt management products available, including insurance policies. Take some time to shop around for something which suits your organisation and its potential risks. Bad debt protection possibly costs less than you realise, and can save you a great deal of money.
The theme of all this is not letting a busy order book or the thrill of new customers distract you from careful and considered management of all credit agreements. Having the skills to manage all aspects of running a SME is the ultimate juggling act contact us to discuss how we can help you keep your financial “balls” in the air.