Darcey Quigley & Co Blog

Turnover is vanity, profit is sanity, but cash is reality!

August 06, 2019 darceyquigley 0 Comments

The reality is, no matter how many sales you make, nothing brings your business down to its knees like a cash flow crisis. A delay in incoming revenue can be disastrous for small and medium sized businesses. With many SME’s relying heavily on a good cash flow, unpaid debts and delays with incoming revenue can affect the operational status of a business.

46% of SME’s in Scotland report late payment issues (highest in the UK) *

When you do experience a problem with receiving your customers payments, many SME’s find it difficult to resolve such issues due to resources and lack of expertise in debt recovery. No matter if you invoice customers early and regularly chase payments it doesn’t always keep your cash flow in check. Reminder letters and chasing debtors sometimes isn’t enough to get customers to pay.

Chasing overdue payments costs businesses £2.1 billion per year *

Help is at hand. There are a number of options available to recover outstanding debt from late payers and bad debtors. The three most common approaches are

  • Pre-Litigation Debt Recovery
  • Litigation
  • Insuring your Debt

There is of course a 4th option which is writing off the debt. However, we can assume that this is not the preferred option for most businesses.

Seek Expert Help

No matter what option you opt for, it is important you seek professional assistance. Each industry has its experts and it is important you consult with someone before you proceed with a particular approach. The focus of all these approaches is to secure your money and make sure you get paid. However, all three take completely different approaches to this. Going through the legal channel can have significant upfront costs, claiming your insurance can take time, you lose over 10% of your total invoice value and have a knock-on effect for next year’s premiums.

Reputation

Do your homework before choosing who to represent your company in collecting your outstanding invoices. Make sure they are reliable and reputable. When the company is chasing your debts, they will be collecting on your behalf and so you need to make sure they deal with your clients in a professional manner and always protect your brand. The best way of doing this is to speak to others who have used their service, look for online reviews if available or see if the company are part of the right professional bodies and have accreditations.

Reduce Costs

The aim is to streamline your credit management processes. Both time and money can be wasted when you are given the run around by problem customers. Sometimes the continual chasing of outstanding payments can be an ineffective use of your time and money. Engaging and outsourcing your problems debtors to a third party can help reduce your outlays. Certainly, in the case of pre-litigation there are no upfront costs in the first instance, your fees only become due if there is a successful recovery. If unsuccessful then no fees would be due under pre-litigation.

Rather than engaging in a costly and time-consuming court battle, you can use pre-litigation debt recovery services to resolve the problem far more quickly and with less impact on your business. These services reduce costs and resolve the issue of late payments, while enabling your business to run efficiently and profitably. However, you must ensure you agree all collection costs upfront to ensure you know exactly how much the collection of your debt will cost.

Claim late payment interest, compensation and costs

The Late Payment of Commercial Debts (Interest) Act 1998 had two main objectives. The main objective was to deter the late payments of debts, Secondly, it is here to help compensate creditors for the late payment of debts. The late payment act only applies commercial supply of goods and services where you don't have a provision for interest in your Terms of Business. This is money which is rightfully yours and should also be sought on top of your outstanding invoice.

Be aware

Awareness is key to help you plan for late payments. It is well documented that larger businesses are responsible for the majority of late payments made to SMEs. Many studies such as those survey results from the Zurich SME Risk Index all highlight this.

This supply-chain bullying has long been a problem for SMEs. It is usually larger amounts of money and as well as extended credit terms. Being aware of this, allows you to put additional provisions to get paid in time. Become a pre-approved supplier, make sure you have a PO for all your work, invoice immediately or even ask for an initial upfront payment or deposit.

Paperwork

When chasing payments whether internally or through a third party, you should always have your paperwork in order. You must ensure that all goods have been signed for and agreed and you have proof of this. You should review your terms of business every year to ensure it covers every eventuality. Having a paper trail will dramatically increase the speed in which you are paid and help you if you are drawn into a dispute with them.

Prevention is better than cure

There are many steps you can take to mitigate your risks. You could take upfront payments for all first order or credit check all your customers prior to offering payment. It is also good practice have all new customer complete an application form. Sometimes you may feel it necessary to take a director’s guarantee.

No matter the size of your business there are many approaches to help manage your credit control. Our advice is be prepared. You should implement procedures which will help you make a more informed decision on offering customers payment terms. Time is of the essence. The longer you wait to act on late payments the less likely you are to recover. Don’t sit with a debt for months, know your options and act swiftly.

Let's Chat

If you currently have a problem with outstanding accounts get in touch. We can review your case and offer you free advice and there is no obligation to use our services. Remember you only pay us if we successfully recovery your debt.

Know the facts, contact us today on 01698 821 468 or marketing@darceyquigley.co.uk

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