Bad debts have always been an accepted part of running a business. But as extreme economic pressure and political unpredictability increase the percentage of bad debt in businesses to unmanageable levels, it is vital to have a plan to address and control debt. The reports and indicators are bad, but there is good news: there are immediate steps that businesses may take to reduce bad debt, and, if initial actions fail, there is affordable help from experts.
The bad news
A recent SME Insights Report published by small business insurance provider Simply Business revealed that small business owners are owed £32 billion in late payments1, which affects a steady cash flow that is vital for a sustainable business. Debt and inflation are driving the surge of companies entering financial distress2. Other recent reports estimate that the time spent chasing late payments by UK businesses costs the UK economy more than £27 billion a year3. No business can afford to ignore bad debt.
Taking control
There are some simple measures that business can take to regain control of bad debt and negative cash flow. Non-paying customers may also be under financial pressure, but without identifying and finding ways of addressing this, the sustainability of both your business and your customers' businesses may at risk.
- Start by identifying all overdue invoices – no matter how big or small. You may end up focusing efforts on debts of large value, but it may be easier to recover many small amounts, which will help your cash flow.
- Approach your customers – set up a clear plan for pursuing non-paying customers and communicating with them directly. Many customers will respond to a reminder letter after 30 days, others will act on a personal phone call after 45 days. Some bad debts may be solved by making these simple, direct approaches.
- Knowing your customer - this will help you to decide how to treat their bad debt. Credit checks may be useful, no matter how large or small the customer. Understand a customer's credit worthiness before agreeing to extend further credit.
- Always keep the needs of your business in mind – tough economic times may require businesses to be pragmatic and to consider each non-paying customer individually, but generous payment agreements that will put further stress on your business are not real solutions.
- Know when you need support – if non-paying customers ignore all your attempts to sort out their bad debt your time may be better spent getting on with your core business and engaging an expert to continue the debt recovery process.
The good news
There are various experts you can use to help you with debt recovery. Debt collection agencies may assist until a debt becomes complex or disputed. A law firm is best placed to pursue disputed debts but is often perceived to be too expensive to use for smaller value or early-stage debt recovery.
At Wright Hassall we have launched a bespoke debt recovery service that is cost-effective, comprehensive, and efficient, and is managed by experienced lawyers. All initial stages of debt recovery will be undertaken at fixed, transparent costs. If a matter becomes complex, we will immediately advise you of this, as well as the additional costs of continuing to pursue the debt. If you decide to do this, our commercial litigation solicitors will be able to immediately continue the litigation process for you.
Businesses are under enormous pressure from bad debt but do not have to face this alone. Please contact us to learn more about how our debt recovery service may provide you with the relief your business needs.
Footnotes
1. https://www.simplybusiness.co.uk/knowledge/articles/sme-insights-report-2023/
2. https://www.credit-connect.co.uk/drafts/debt-and-inflation-drives-surge-in-companies-entering-financial-distress/
3. https://www.credit-connect.co.uk/news/late-payments-costing-businesses-27bn/
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
