How To Stop A Bad Debt Before It Happens

When it comes to running a business there are a lot of things that can sap your time. But one of the biggest killers of all, for time and resource, is chasing overdue invoices. Especially when the customer you’re chasing just doesn’t have the means to pay it. This can lead you to getting frustrated, wasting time and resource, and potentially damaging the relationship with your customer, all in one fell swoop.

So a better option for your business is to learn how to recognise the warning signs for bad debts, so that you can handle them before it gets to that stage, and before you suffer their negative effects. It’s much easier to see this sort of thing coming with new customers than with old, but you might see some red flags with current customers in this article too.

Red Flags in Research

If you’ve been around our blog for a while, you’ll know that we strongly recommend you research new customers before you agree to work with them. Credit checks, background checks – even just running their company name through Companies House can help you see what their financial state is and how they deal with payment deadlines. For example, do they already have outstanding debts? Do they meet their filing deadlines with HMRC, or miss them? Do their latest accounts look healthy, or a bit thin on the ground? Do they have any County Court Judgments open (this might suggest a cash flow problem). Be aware of what the red flags are, and what they mean.

Undeliverable Letters

If you’re trying to send letter and they aren’t getting through, this is a big warning sign. While a returned letter could just be a sign that they have moved premises without providing a forwarding address for post, it could be something more sinister. Your first stop should be to check their website and their Companies House listing to confirm any changes of address. If there is no change, then this is a big red flag, and you may have to involve a tracing service to locate the business for any future letters and legal action.

Industry News

If you’re dealing with a  slightly bigger buyer, or just a small industry, then you might heat about company misfortune in the news. Not necessarily in the broadsheet headlines (that indicated a much bigger problem), but the industry news. You might hear rumours circulate, details that could have a knock-on effect on their ability to pay. For example, if they’ve just lost a major contract for one of their own clients, they might have some significant cash flow problems for a while, and be unable to pay your invoices. Keep abreast of industry news, and make action plans quickly if needed.

Excuses

Excuses excuses. Businesses who can’t (or won’t) pay invoices are full of them. Anything to avoid saying ‘I can’t afford this right now’. So if a company you’re dealing with is starting to give you nothing but excuses, and falling behind on their payments, it’s a pretty good sign that they’re experiencing some cash flow problems. These could be short or long term, and the way you deal with it will depend on which is it. If you talk to the client and it seems like a one-off blip, you can work through it easier than if non-payment has become a habit.

At Debtcol, we work with businesses of all shapes and sizes to help them understand what red flags they should be looking for, and how to manage them to avoid those dreaded late payments. With our help, your business cash flow could look much healthier, and if you do end up with bad debts on the books, we can help you reclaim them. If you would like to know more, just get in touch with the team today.