Bad Debt

Cash flow is the lifeblood of your business.  Even when business is booming and trade is continuing at all the hours of the day, a lack of cash flow can cripple many Small & Medium Enterprises.  Bad debts and late payments can contribute to cash flow issues and can also eat up many working hours in chasing debtors and in worry and stress. A third of all Irish SME’s suffered bad debt in the 12 months period prior to September 2017. A few simple things can be put in place to both avoid the issue of bad debt arising and to assist you in collecting outstanding arrears.

Set a credit policy from the start.

It’s a good idea to take time to set up a good system and a credit policy and avoid the issue of bad debt in the first place. This is vital when you wish to maintain good working relationships with your clients as detailing your credit policy from the start of trading, is clear and precise and leads to no confusion.  Invoice daily.  Depending on your industry and trade, this can mean ‘payment on delivery’, ‘thirty days credit’ or whatever system suits your needs.  Obviously, if you are in a position to ask for payment on delivery, there should be no need for bad debts.  Once a service or goods have changed hands, it can be more difficult to get paid in some instances.

Credit Checks:

Conduct a credit check on new clients.  This can include bank references or trade references. Set a credit limit if you feel there is any issue.

Invoice!

This is pretty straightforward advice and probably seems like a no-brainer. But many SMEs’ and tradesmen in particular, are hot at getting the job done but not so good at the paperwork. Set aside time every day, to invoice customers using a simple accountancy package. It is much harder to collect monies for work done 12 months previously.  Ensure your Bank details and credit policy are on the invoice. Make it as simple as possible for the client to pay you.  Identify the person in each company who pays the accounts and if needs be, call regularly to establish a relationship.

Reminders and Collection:

If an invoice remains unpaid after 30 days it would be appropriate to send a reminder.  Call in if you are passing. Phone if you have to. It is a sad fact that some companies do not pay their bills until you shout, and sometimes the one shouting loudest gets the money.  In the case of large sums, it may be a good idea to call the client before the due date and remind them of the payment.  Chase overdue money. It’s not personal. Its bad practice and you have to deal with it if you want to keep your own business thriving. Read more >>

Recovery:

When a client is unwilling or unable to pay or when the business has closed, it is time to put the matter in the hands of a Debt Collection Agency or a Solicitor.   But before you make this decision, you must ask yourself if it is worth the time, the money and the energy in pursuing your claim.  It may be more prudent to walk away and ensure that you write off the bad debt with an internal credit note, explaining the issue in the note.  This will ensure that any VAT goes into a repayment situation. It is always advisable to discuss such issues with your accountant.

There will be always be clients who are disorganised, late to pay or who simply refuse to pay, but with careful management and good policies, you can reduce the impact of their bad business practise on your own company.